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At 32.5 per cent, your Casa (current account and savings account) ratio lags those of large private banks. Do you plan to raise this?
Our Casa ratio has been very steady for the last four years, at 31-33 per cent. It is the highest among South-based banks. Qualitatively, our current accounts and savings accounts are almost half-half, which means on the overall Casa, we broadly pay two per cent. That’s quantitatively and qualitatively very different from a primarily-savings account bank, which is perhaps paying six per cent. It’s a little tough to expand this ratio. Typically, current accounts rise, based on how well the economy is doing, as these are largely for companies. Currently, our economy is not in the best of shape and, therefore, isn’t conducive to large accounts or current accounts. Also, given the high interest rates, savings accounts are less attractive to individuals. Thus, if interest rates fall, there is a tendency for savings accounts to rise; if the economy does well, current accounts go up.
What are your plans for branch expansion?
We have about 550 branches and we believe we have attained critical mass. ING Vysya’s average Casa per branch has risen 60-70 per cent through the past four years. Our existing branches require much less investment and are the best sources for new business. So, our focus is on achieving higher productivity and squeezing more from the existing infrastructure.
What is the outlook on loan growth this financial year?
Through the last four-five years, we have been growing four-five per cent more than the banking system’s average growth. Over the last year or so, we have been very conscious that the credit environment is turning adverse. Therefore, now, we are saying though we still want to grow fast in the market, we will temper it to ensure quality growth.
Do you expect asset quality pressures to rise? What about the mid-corporate segment?
Our asset quality has been extremely good. Our net non-performing assets stand at 19 basis points; our provision coverage is about 90 per cent. Both these metrics are close to the best in the market. For the next three-four quarters, I expect to see stress in the system. We continue to be conservative and are prepared to see our credit costs worsen, given the fact that these are actually very low. However, ours will be among the best credit costs in the market.
We have seen pain on the mid-sized companies’ front for the last two years, as this is directly impacted by what is happening in the economy.
Therefore, we are very cautious and not looking to grow there. It is not a very large piece of our business; currently, it is about just 10 per cent.
Your net interest margins (NIMs) fell in the quarter ended September. What is the outlook for this financial year?
Last year, our NIM was 3.5 per cent. It has fallen slightly due to the central bank’s measures this quarter. We expect the full-year margin to be similar, or even better than last year’s.
Banks and non-banking financial companies have increased their focus on retail lending. How will your bank expand this segment?
We were always good at dealing with large and international companies. We are also positive on growing our mortgages (home loans and loans against property), agriculture and gold loans segments. Keep in mind these are small bases and our market share is quite small. So, for us, the issue is not growing, but growing with quality.
Do you think banks will go for another round of rate increase?
We have already seen two banks raise rates. A lot of us are still reviewing whether we should do something similar. So, regardless of what the Reserve Bank of India does or doesn’t do, some of us may indeed raise our base rates, even in the course of this quarter. That’s more of catching up, because some have already done it and we haven’t responded. A base rate increase could happen as a lag reaction; I don’t think a further increase is likely.
Do you think the banking industry’s credit off-take could moderate?
My sense is currently, credit off-take is too high. Also, we have been a little concerned about the fact that headline growth is actually concealing some not-very-good underlying stories. Companies are borrowing not for productive reasons, but basically to fund inventories or longer receivables cycles. This could be a temporary mismatch. As soon as things improve, we could see investment cycles pick up and credit off-take increasing for good reasons. As of now, I am a little sceptical. In my opinion, real credit off-take isn’t 17 per cent, it should be at 13-14 per cent levels.
