Romesh Sobti was re-appointed chief executive of IndusInd Bank for three years in February. In an interview with Parnika Sokhi and Somasroy Chakraborty, he shares its growth plans. Edited excerpts:
IndusInd Bank recently acquired Deutsche Bank’s credit card portfolio. Are you exploring acquisitions in other sectors like insurance and broking?
The agenda of achieving universality in our product suite is now complete. The target for the next three years is to build scale into our businesses and maintain profitability. Our branch network will provide us the platform. We plan 700 branches by March 2014. We crossed the 300-mark, opening 90 branches last year. This year, we plan to add 125-130 branches. This will bring us deposits, especially low-cost deposits, and increase our distribution capacity.
Do you plan to raise additional capital to build scale?
We are well capitalised today. We will still have a high level of capital adequacy for the next 12 months, even if our balance sheet grows by 25-30 per cent. But we have decided to visit the market to raise funds at least once in the next three years. It will happen towards the end of 2012.
Is your capital raising plan also driven by the need to cut promoters’ holdings?
Our capital raising programme will always be driven by balance sheet requirements.That will also lead to a dilution in promoters’ holdings. There is an understanding between our promoters and the Reserve Bank of India (RBI) on dilution of their stake. They are committed to it. They have brought down their stake to 19 per cent from 27 per cent earlier. But we will not raise money only to dilute promoters’ stake in the bank. Keeping a well-capitalised balance sheet is a necessity but usage of that capital is also very important. We have to ensure return on equity for our investors. This return has been 18-20 per cent and we intend to maintain it.
RBI plans to offer new banking licences to private players. Do you expect your margins to shrink as competition increases?
I don’t think there will be any such impact, as there is enough room for another five to six players. New banks will take time in finding their feet. To start with, they will have to meet various obligations. I don’t think any new player can afford to buy market share by sacrificing margins. That is a formula fraught with danger. If you buy market share disproportionate to your size, it will not be sustainable and will eat away the capital. The real issue will be to retain talent once competition grows.
Do you fear high rates may slow growth of your loan book? Do you expect RBI to raise rates again this month?
The industry is holding up nicely, despite rates moving up. The impact of rates on credit growth is tiered. There have been deferments in some of the new projects but I don’t think expansion projects have been impacted yet. The pull in working capital continues to remain strong. Our loan book is small, compared to some of the large banks, and we are confident it will continue to grow at 25 per cent. Our treasury department believes there will be a pause in rate increases in the next monetary policy meeting.
