In an interaction with reporters after the announcement of the bank’s Q3 results, managing director and CEO Romesh Sobti said the classification of IL&FS as a standard or non-standard asset doesn’t matter as the bank has made provisions in excess of the requirement.
IndusInd Bank on Wednesday reported a 5% y-o-y rise in net profit for the October-December quarter of FY19, largely due to a higher contingency provision made on account of its exposure to IL&FS. In an interaction with reporters after the announcement of the bank’s Q3 results, managing director and CEO Romesh Sobti said the classification of IL&FS as a standard or non-standard asset doesn’t matter as the bank has made provisions in excess of the requirement. Excerpts:
Going forward, to what extent are you going to be making provisions against your exposure to IL&FS? Could you break up the exposure to the group?
The assessment is going to be done based on the realisable value of the assets of IL&FS, and that will determine our level of provisioning. Whether the asset is standard or non-standard doesn’t matter as we have made provisions well in excess of the requirement. In Q4, we will make more provisions so that we move into a zone of comfort as far as the realisable value of assets is concerned. We expect no loss on the special purpose vehicles of IL&FS, and we have a very good reason to believe that the valuations are far ahead than the exposure that we have and we know there are realisable assets. We are doing a realistic valuation of the assets. We have an exposure of `2,000 crore in IL&FS holding company.
What are the slippages and divergence this quarter and your outlook on net interest margins (NIMs)?
In Q3 last year, the slippages were 0.5%, while in this quarter it is 0.4%, while we have no divergence to report. In the past two quarters, NIMs had slipped, so we came off the peak at 3.99% to 3.83% this quarter. There is stability in the NIMs, and going forward we expect to be stable in Q4 also and we hope we return to previous stable NIM levels soon.
What is your guidance for credit costs for the quarters ahead?
Credit cost guidance-wise, when we start April next year, we start with no IL&FS exposure because we would have entirely provided for it. Our guidance that we should be below 60 bps and we are currently at 40 bps for the past 9 months. We expect that we will stay below 60 bps credit cost.
Can you give us an idea of the MSME loan book and its growth?
The MSME book if we break it out, part of the loan book is in retail financing and also business lending. The book hasn’t shrunk but it has grown, you can take the cue looking at the vehicle finance growth which is at 30%.
Do you see any underlying stress from the dispensation norms by the RBI?
For instance, in Kerala when the dispensation was made, the total was Rs 100 crore. It entirely depends on who asks for it. We don’t see stress if customer asks. In our portfolio, there has been no requirement to do any dispensation for our customers.
What is the provision coverage ratio (PCR) and what is your succession plan?
The PCR is just under 50%. When an account is fully provided, then you get a tax benefit for fully provided accounts. When you fully provide the accounts are usually 4-5 years old. Banks have moved away from the PCR regime, though internally we intend to keep PCR at 60%. On the succession front, the board is looking currently and the board is looking at internal candidates.