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The Rediff Interview/Romesh Sobti, MD & CEO, IndusInd Bank

'The days of unlimited capital are over'

February 05, 2009

IndusInd Bank Managing Director and CEO Romesh Sobti seems satisfied with what he has done with the Hindujas-promoted bank during the first year of his stint. At the same time, he tells Anirudh Laskar and Sidhartha that improvement in performance indicators and fee-based activity need to be complemented with increase in scale.

You have reported an increase in margins during the third quarter when everybody expected a fall. What has been your strategy and what are your focus areas?

We are focusing on six parameters which entail three qualitative measures of profitability, productivity and efficiency. Profitability involves return on assets, return on equity and net interest margin. Productivity is revenue per employee and net non-performing assets, while efficiency involves the sixth parameter of cost to revenue ratio.

We are not in the market share game, because it is no guarantee of profitability. The biggest banks around the world which play on market share are not necessarily profitable.

So, you do not want to be the second or the third largest bank in the next three years?

No, we have no such ambitions but in the six parameters we will be among the top three in the next three years. So far, these six vectors have moved in the right direction and we hope we will be able to maintain that. We will maintain it through a balance sheet growth, or more productivity, or better use of capital.

The days of unlimited capital are over, so the days of uninhibited balance sheet are over. Now, the theme is going to be preservation of margins. We will focus on non-capital guzzling revenue streams, and every bank will think on the same lines. Although our CASA has not increased dramatically, our margins have improved from 1.1 to about 1.9 at the end of December. We are sure to breach the 2 per cent mark this quarter.

Our ambition is go past the 3 per cent mark. In fact, in some of the parameters like RoA (at 0.7 per cent), RoE (at 13 per cent) and NPAs we are running ahead of our three year targets. Very soon, we expect our RoA to reach 1.1 per cent, and we will be among the top three banks.

What about fund raising since you have received shareholder approval to increase the authorised capital?

That is just an enabling resolution, and does not necessarily mean that we will raise capital. We do not need any more capital this year. Next year, we will first look at our ability to raise capital through the tier-II route. We are in no hurry to go to the market for raising capital.

We can raise up to Rs 700 crore (Rs 7 billion) as tier-II capital. We have not used that because it was not cheap to raise subordinated debt for five years. But now rates are falling sharply and our risk profile is improving, which will enable us to beat down the rates. We have full commitment from our board to bring in capital whenever we need it.

What about your stake dilution by the promoters and when will they fully comply with the RBI norms?

That is an engagement between the promoters and the RBI. I am happy that we have got the permission to expand. We want a bigger footprint because our business model will benefit more from a wider reach. In the next two years, we hope to reach our target of 350 branches. Every time we go to the market, we will see a stake dilution.

Which means there is no strategic partner?

When you say strategic partner, I would say yes, we have been approached. But my question is what would one bring in for us as a strategic partner? I can raise money. The partner has to get some special skills or domain expertise such as wealth management. If somebody offers me more trade capabilities or some a huge NRI diaspora, then I can consider it.

Are the promoters willing to dilute their stake in such a situation?

If there is a compelling case, there will be receptivity. But we have to be convinced. Once we are convinced, we would be able to convince the shareholders.

Changing the product mix was a focus area.

Unsecured products on the consumer side are not our priority right now, but we have capabilities. Vehicle finance now constitutes 52 per cent of our loans as compared to 60 per cent earlier. But corporate loans have gone up. So we have rebalanced our loan portfolio.

By next year, the share of vehicle finance business will go down to 40 per cent, and the corporate and institutional banking business will grow to 60 per cent. Both will grow, but the percentage mix will change.

Will you look at acquisitions since there are many assets up for sale?

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