Seeing improvement in retail book quality: Romesh Sobti, IndusInd bank

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April 22, 2016 6:15 AM

IndusInd Bank on Thursday reported a 25% year-on-year rise in its net profit for the final quarter of FY16, benefiting from strong growth in advances and deposits.

IndusInd Bank on Thursday reported a 25% year-on-year rise in its net profit for the final quarter of FY16, benefiting from strong growth in advances and deposits. The private sector lender also reported a 27% Y-o-Y increase in its core fee income, which further lifted its bottom line.

In an interaction with reporters after announcement of results, managing director and CEO Romesh Sobti talks about various aspects of the bank’s financial performance and how it intends to change the role branches play in everyday banking.

Can you give us a break-up of how much have slippages risen and what is the total sale of assets to asset reconstruction companies this quarter?

Slippages have remained constant. They are almost the same as the the last quarter at around 1.3%. The restructured book has at least shrunk by 5 basis points and is now at around 50 basis points. Gross and net non-performing assets have moved in 2-3 bps range. Sale to ARCs stood at around R40 crore, but we recovered R30 crore. So, the net increase is only R10 crore.

You beat your credit cost guidance this year, which was 60 bps. Do you think next year could better the 57 bps you reported for this year?

This year’s credit cost is actually not 57 bps. It is actually lower. Because there is carry forward of amortisations that we did in the last quarter of last year. So that is R32 crore every quarter. If you take that off, the credit cost is actually 43 bps. So, I think that we are definitely seeing improvement in the quality of our retail book. Our commercial vehicle portfolio is performing much better because transporters have more cash in their hands as a consequence of very stable freight rates and of course the reduction in prices of diesel. So, we expect that credit costs on retail will

fall slightly faster. We don’t share our ambitions but the point is that we have always said that we will not cross 60 bps. If you remember, two years ago, we were at 40 bps. A year ago, we were at 50 bps. So we want to get back to that range.

Non-vehicle retail is currently a small part of your overall portfolio. Do you see this segment growing more and perhaps contribute a larger chunk to your overall business in the next few years? How will vehicle vs non-vehicle play out?

If you look at it from a 12-month perspective, you will see this is growing faster than the vehicle finance business. So the percentage of non-vehicle finance within our retail business will certainly go up. But in terms of vehicle finance, our market share has improved, so we are not going to lose market share. So the balancing will happen over a period of three years between non-vehicle retail and vehicle retail. Of course, the point is that also should be 50:50. Like corporate and retail are 50:50, within retail, vehicle and non-vehicle will also be 50:50. But I think it is going to take at least three years before we get there. Currently, around 31% of the retail book is non-vehicle finance and the rest is vehicle finance.

You touched upon “reconfiguration of branches”. You finished setting up over 1,000 branches all over India. What we can expect in the year to come with regard to branches and what do you mean when you say that branches will be reconfigured?

In terms of number of branches, we have already said three years ago that by March 2017 we would have 1,200 branches. We are well on track; we would need another 200 to get to the target. Now, 1,200 would mean we have doubled our branch network. Reconfiguration is about what would one do in the branches. So if you are saying that digitisation is going to create online selling, what is left in the branch? There will be certain amount of cash because cash transactions still happen. Because there has been massive centralisation of operations. The basic thing would be essentially around processing capacities that are resident with branches today and how they will swing going forward. But front-end selling and client service will continue. So, in that sense, the branch will shrink to some extent.

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