Mid-sized lender IndusInd Bank kick-started the earnings seasons for banks reporting a stellar net profit growth of 42% in the first quarter this year with margins stable at 3.72%. The bank, however, sees credit growth through the industry to be subdued going forward due to anaemic economic growth.
Managing director & CEO Romesh Sobti talks about the challenges and new business forays. Excerpts:
Credit growth: The outlook does not seem to be encouraging at all. I don’t see signs of credit growth taking off for at least next two quarters. There are no fresh lending pools coming into the market. Only existing credit is getting renewed. At some point the industry will put a floor saying we will not go below this because you can’t do business at any cost because margins have to preserved. This will mean growth will slow.
Pricing of corporate loans: Pricing on corporate loan book is already moving down. As there is not enough pool available for lending, there is competitive pricing going on. If you see our corporate loan book, corporate yield has actually come down to 11.26% from 11.39%.
Cost of deposits: Since last month we have seen deposit rates come off, and the way our book is configured, we expect to benefit from that in the next quarter.
Margins will hold at the current levels.
Foray into gold loans: We’ll see the launch the business by end of this quarter or early next quarter. We just hired the business head from HDFC.
Loan-to-value ratio will be low between 50% and 65% because the industry has learnt its lessons. These gold loans can be for any end use either consumption or productive use loans. The demand for gold loans is good and default rate is very low. Regulatory issues are also very clear now.
Outlook on the sector: Profitability in the sector both in interest income and fee pools is certainly under pressure. Interest margins will probably remain flat. Fee pools have definitely shrunk.
Base rate cut: There is no signal for a base rate cut.
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