IndusInd Bank continues to post robust profits as it reported a 25% jump in its PAT for the second quarter compared to a year ago. In September, the bank entered into an exclusivity agreement with Bharat Financial Inclusion for a possible amalgamation. Romesh Sobti, MD and CEO of IndusInd Bank asserted that the lender has strong faith in the microfinance industry. He expects to grow the microfinance portfolio to about five to six percent of the overall portfolio in about three years. Sobti also pointed out that the bank has an exposure to six of the 28 accounts that were recently referred to the National Company Law Tribunal (NCLT). Excerpts:
Can you throw some light on the deal with Bharat Financial Inclusion?
All I can tell you is that we went into an exclusivity, confidentiality and a standstill agreement with them almost three weeks ago. As of now we are still in that arrangement. We have faith in the microfinance industry. We are not deterred by events that happen in the market following which a lot of people run away from the business. The industry is back to normal levels of disbursements and more than normal level of collections. This business is steady. We have to take a 10-15 years view of a business, not a quarterly view. There was a lot of noise and dust around microfinance because of demonetisation. I think you will see that the industry has put most of it behind them and they are back on track. We stand behind this industry.
We have elections coming up in some states. Do you see this having an impact on the MFI industry?
Elections have happened for the last ten years since the Andhra Pradesh crisis and nothing happened to the microfinance industry. It has gone from strength to strength. The event that came in was demonetisation. The borrower wanted to pay but you could not collect because the notes were demonetised. As soon as you found a way of collecting, the returns came back and see how the industry has bounced back. I don’t think you need to link it (industry’s performance) to elections and other events. Whatever we do, organic or inorganic (growth), microfinance portfolio over a three-year period will be five to six percent of our portfolio. Currently, it accounts for 2.5% or less than R3,000 crore.
Your view on net interest margins?
Aspirationally, we want the NIMs to be at 4%. There are other parts of the business where we want to grow. For instance, we want to increase our AAA and AA+ loan book on the corporate side. We can increase our margins by 10-20 basis points, but we want to use the excess margins to build up our AAA and AA+ loan book. NIM is steady because we want it there.
How much exposure do you have to the accounts referred to the NCLT in the recent list?
We have exposure to six of the 28 accounts for which we have a provisioning of Rs 36 crore. Of the first list of 12 accounts, we have exposure to three accounts.
How does the renewables segment look like in your portfolio. We are seeing the tariffs fall. Wind tariffs, for instance, have fallen significantly?
For this industry, tariff rates have crashed. You have to be very careful on the strength of the sponsors. You are seeing a convergence of rates between the different types of power generation in renewables. You have got solar, wind and thermal— our sense is all of them will converge at around Rs three. The repricing of tariffs is one of the biggest risks here. Whichever sector you see a rush, you see a pain later. Renewables per se is not an area that you blindly jump into.
Roopa Satish, country head of corporate, institutions & investment banking, said: Our renewable energy book is about `1,000 crore and that is split between wind, solar all put together. We have very strong policies and risk review done on this segment to make sure that we do not bank with new names who do not have strong sponsors. There is a very thorough analysis of the projects that we are getting into. We are quite comfortable in this space.