Romesh Sobti, Managing Director & CEO, IndusInd Bank, joined IndusInd Bank in 2007, with 35 years of banking experience in large state owned and multinational banks, including ANZ Grindlays Bank (now Standard Chartered Bank) and the State Bank of India. He holds a Bachelors Degree (Honours) in Electrical Engineering and has also done his Diploma in Corporate Laws and Practice and Secretarial Practice. He holds B.E. (Hons) – Electrical, and Diploma in Corporate Laws & Secretarial Practice. His last assignment has been with ABN Amro Bank as Executive Vice President - Country Executive, India and Head, UAE & Subcontinent. His responsibilities included consumer and commercial businesses in India, Pakistan and UAE support.
IndusInd Bank, commenced its operations in 1994, caters to the needs of both Consumer & Corporate customers. It has a robust technology platform supporting multi - channel delivery capabilities. The Bank enjoys a patronage of 2 million customers and has a network of 210 branches and 497ATMs spread over 168 geographical locations in 28 states and union territories across the country. The Bank also has Representative Offices in Dubai and London. The Bank is driven by the state-of-the-art technology since its inception. It has multi-lateral tie-ups with other banks providing access to more than 21000 ATMs for its customers. In a pioneering initiative in 'Green Banking' project, the Bank became the first bank in Maharashtra to open a solar-power ATM. Subjects like sustainable development, social responsibility and climate change are fast becoming part of the corporate vocabulary and IndusInd is at the forefront of this change in the Indian banking sector. This reflects significant improvement in its asset quality. The rating also factors in the Bank's resources and earnings profile, and average capitalisation levels
Speaking with Jasmine Kohli of IIFL,Romesh Sobti says "We are on a network expansion mode and plan to raise Rs10bn by the end of this calendar year"
Do you see any impact from base rate?
Technically, base rate will have no effect; it’s just a reference rate. Earlier we had PLR and now we have the base rate. We were lending below PLR and now we will lend above base rates. So, there should be no impact. But in a rising interest rate scenario, overall interests are going to move, so it has nothing to do with base rates.
Base rates have just been fixed; we have a 6 months period in which you can fine tune base rates. So, market is going to find this level very soon. But very clearly we see that not much variation is there. As people said that those with bigger CASA will have lower base rates…it is not so. We see a clustering of around 7-7.5%.
Will the Base rate have any impact on your margins?
Base rate doesn’t change things much in terms of the margins; if anything it will improve margins, especially in a rising interest rate scenario. Base rate will not affect quality. The whole banking industry is clustered around 7-7.5%; there was a time when a lot of lending was done at 5-5.5% to the corporates. This has to be re-rated and it is this lending that may be replaced by other instruments like commercial paper. So, it will not change the overall balance of your book. So, some instruments like commercial paper may sort of get fresh lease of life but there are issues that need to be sorted out.
Brief us about financials?
The year has begun on a high note for us on both profitability and productivity. There are improvements not only on year on year basis but sequentially also there are improvements.
The headline numbers have grown very robustly. There has also been expansion of margins, increase in returns and of course the quality of the book has improved even further.
Our net interest income has expanded and has zoomed by as much as 77% yoy and has more importantly grown sequentially by 8%.
What is your outlook on fee income?
The core fee income is our client based income, and we exclude trading which is a volatile income. This has grown by 55%.
Overall revenue has grown by 34%. This year we have seen an increase in our core fee income of almost 50%. PAT has grown by 37%.
Overall, in my opinion the headline numbers are pretty decent.
NIM has expanded further. Last year first quarter it was 2.60% this year (as at June 30) it is 3.32%. Return on Assets in the first quarter of last year was 1.27%; this year it has increased to 1.33%
The RBI has mandated that all banks will achieve a provision coverage ratio of 70% by September. We have hit the 70% mark by June itself.
Any branch expansion plans?
We are now in a growth phase and we are expanding our branch network. We have got 127 new incenses out of which 61 are in tier I and tier II cities and 66 in Tier III cities. This quarter we opened 14 branches so we now have 224 branches. Next quarter we will add 25 new branches, another 35 in the following quarter and 40 in the last quarter of the fiscal. We hope to open at least 115 new branches out of these 127 licenses. So expansion phase is underway.
Brief us about your loan growth?
Our advances grew by 31% in Q1 FY11 and we kept a conservative loan to deposit ratio. So deposits grew by almost 27%. So I think we continue to beat the market both in terms of credit growth as well as deposits growth.
The quality of the book has improved in line with our profitability. Our gross NPAs have fallen to 1.26%; last year it was 1.46%. Net NPA stood at 1.38% which was at over 1% last year. So we see a robust improvement in the quality of our loan book.
What is the CASA as percentage of total deposit?
CASA as percentage of total deposits stood at 24.33% in Q1 FY11 as against 20.20% in Q1 FY10. CASA showed an increase of 52.45% in absolute numbers on yoy basis.
Capital adequacy has come down to 13.14% from 13.71% last year. We will be infusing capital this year and we will certainly raise money through tier I before this calendar year ends.
We raised Tier II capital in March of last fiscal and we have the capacity to raise more Tier II capital. We will keep Tier I debt capital at 10%.
What is your year end target for NIM?
We are revising our targets for NIM. In three years we will go to 3.5%, but it is ramping up faster than we thought. Certainly, as our CASA improves and yields are being maintained. In fact, yields have improved for both our consumer finance book as well as our corporate book.
Why is your other income down?
It includes money market and treasury income. Last year our trading book gave us revenue of Rs86 crores; this year it is Rs19 crores. But client based fee income has gone up by 50%. Trade and remittances have gone up by 87%, FX from clients has gone up by 117%, and third party products have gone up by 114%. So the component of fee that really matters is core fee from clients that has gone up sharply.
This quarter advances were evenly distributed and there was no sectoral bias. Our consumer loan book, which is retail finance, has grown at a fast pace. It has grown sequentially faster than our corporate book; that’s why our mix of loan book which was 60% corporate and 40% consumer, is now 58%-42%. So there is a slight upward movement in the growth rate of our consumer finance book.
Any fund raising plans on cards?
The amount of funds to be raised will be a factor of the way our balance sheet grows. To give a historical perspective, in 2008 we diluted 10%, in 2009 we did 10%, so this year it could be anything up to 8-10%. We are on record, to say, that we will bring capital up to Rs10bn.
The route could be any thing; we have done GDR’s in the past, QIP in the past.
Our target is to raise funds by this calendar year. We have no urgency, so it’s a matter of time.
Any new products on the anvil? In terms of services are you planning to diversify into more area?
We are in the middle of hiring a credit card team. In the current fiscal year we are also coming out with currency futures.
We are also diversifying our consumer finance business, which is highly clustered around vehicle financing. We have home loans, two-wheelers and three-wheelers. We have also launched loans against properties.
Brief us about your deposit growth?
Our deposit growth year on year is 30% and on a quarterly basis we have been growing at 8-10%. We don’t find any difficulty in expanding our business. On the asset side, our vehicle finance book is not a problem. CASA as a percentage of your total deposits is 24.30 as against 20.20.
The Rs10bn funding is for our growing balance sheet and branch expansion.