Mumbai: Shailendra Bhandari, managing director and chief executive of ING Vysya Bank Ltd, doesn\u2019t want to be a price warrior. He will not raise the savings bank accounts rate till some of the bigger banks do that. \u201cThe banks that raised rates believe they will get more money or just want to be defensive. I don\u2019t think we will be defensive,\u201d Bhandari said.<\/p>\n
\u201cBanks are raising rates with a fundamental premise that people will save in savings account. For savings accounts, you need to actually go out and get customers. There\u2019s no point in rushing in.\u201d Edited excerpts:
\nYou have had a very interesting history of 81 years\u2014the first Indian bank in which a foreign bank picked up a controlling stake. But to some extent, your bank looks schizophrenic. It had moved fast, then slowed, and is again moving now. Doesn\u2019t seem to be very sure of what it wants.
\nYou\u2019re right in some respects. Vysya Bank was set up in 1930. And while in terms of assets we are small, we also have many branches. As regards our performance, I wouldn\u2019t use a word like schizophrenia… The fact is that we have a long history. This is an old-generation private sector bank that was set up for the Vysya community\u2014primarily traders who are concentrated in Andhra Pradesh and Karnataka, which explains why we are perhaps the largest private sector bank in terms of number of branches in Andhra Pradesh\u2014180. Similarly, in Karnataka we have another 120-130 branches. We did not do much work with metro consumers or large corporates. Rather we worked with SMEs (small and medium enterprises). In 2002, ING acquired control. The culture changed accordingly.
\nAnd your business was affected, too.
\nThe business actually did not move. It didn\u2019t go down, but you are right\u2014from 2002 to 2009, it was a golden period of banking and the whole market was growing at about 21-22%. There were a few who were growing by 31-32%, but ING Vysya was growing at half of that. As a result, we lost market share and this was because they were a lot of issues which came out in merger, the amalgamation, the consolidation.
\nAll this, despite ING holding 47%.
\nYou must understand that ING itself was relatively new to India in 2002. So, the core banking platform which was installed around that time\u2014Profile\u2014was an excellent platform, but the problem is that this is a platform which is used by ING overseas in the ING Direct business. ING Direct is the world\u2019s largest Internet bank, but India is a bricks-and-mortar country, so it caused a lot of consolidation issues.
\nWe even had issues like getting the brand name right. Vysya is a community name; it\u2019s not an inspirational name. Besides, 90% of our branches were in the South and only 22% of India\u2019s deposits are in the South. Secondly, our target segment in retail business is the affluent class, but with half my branches at that time in the rural and semi-urban areas, we weren\u2019t in the right places.
\nHow does the future look like?
\nThe core banking platform Profile is working. And while we are still expanding in the South, our exposure has fallen from 90% to 65%. And more than two-thirds of our branches are in the urban and metro areas. We are seeing the results. Over the last eight-nine quarters, we have registered good sequential growth.
\nWhat\u2019s your take on savings bank deregulation. Yes Bank Ltd, Kotak Mahindra Bank Ltd and IndusInd Bank Ltd have raised rates. Will ING Vysya join the fray?
\nObviously, some of the first to announce are the ones who have (current and actually got nothing to lose and a lot to prove. If you have a Casa savings account) ratio which is somewhere around 10%, even if it gets reprised, it doesn\u2019t really matter a lot.
\nYour Casa is roughly one-third of the total liability.
\nYes. We are not as good as the very best in this class, which are in the 40s, but our Casa is around 33%. Of this, SA (savings account) is around 16%, about Rs 5,000-6,000 crore, which, by the way, is the highest among all South-based banks.
\nYou are taking pride in being the best in South; you are not looking at yourself as an Indian bank. Is this a mindset issue?
\nNot necessarily. We want to be the best in our class. We are now the best in the South, but we know that\u2019s not good enough in the long run.
\nWhat\u2019s the plan to grow?
\nBanks that have raised rates are working on the fundamental premise that people will save in savings accounts. The reality is that savings account is a transactional account. Where do you put your savings money? It\u2019s where you have your salaries coming, credit card is linked, demat account is linked. If I want to save money, I could be very lazy and leave it in the savings account, but more likely I will put it FMPs (fixed-maturity plans) or liquid funds.
\nIf I am a small investor, I will put it in fixed deposits as I can get 9.5% for one year. So, banks are raising rates with a fundamental premise that people will save in savings account. For savings accounts, you need to actually go out and get customers. There\u2019s no point in rushing in.
\nSo you may not tweak the savings account rates.
\nI don\u2019t think we are saying that. We would like to see some of the bigger players to move and then we will make our decision. The most illogical thing to do is to raise the rates. The banks that raised rates believe they will get more money or just want to be defensive. I don\u2019t think we will be defensive.
\nWhen it comes to loan growth, you have been very aggressive, growing at a higher rate than the industry average.
\nWe did give the aspirational statement that we will move faster than the market, but we also said it will be accompanied by better quality. Which is why though we got 28% growth last year, when the market did 23%, we didn\u2019t say that we are going to do 28% this year also. We are conscious that you can\u2019t drive fast on a slow road. Also keep in mind that we don\u2019t lend to several sectors including airlines, real estate and power. We also don\u2019t do project finance.
\nHow big is your exposure to microfinance institutions (MFIs)?
\nIt is very similar to the others. I think we were part of the CDR process which happened in June and it was already (corporate debt restructuring) part of our balance sheet. It is not significant. We stopped giving loans to MFIs almost a year ago because as soon as the new regulation came in, we felt that the model was fundamentally bad. Now, obviously, the Malegam committee has come out with recommendations, but I don\u2019t think, as yet, this is a segment where we would lend afresh.
\nWhat about your non-performing assets (NPAs)?
\nOur net NPA is 0.3%. Our provision cover is 85%. And our gross NPA is around 2%\u2014most of which is legacy. Our restructured assets are just over 1%.
\nSo you don\u2019t see any strain anywhere?
\nOf course there will be a strain. In a rising interest rates and a slowing economy, you see strain. But we have a model which allows for a risk-adjusted return, and you have a cycle and within the cycle there will be times when it will be tougher and times when it will be better.
\nAbout 40% of our loan book is what we call wholesale, and within wholesale there are large corporates\u2014blue-chip ones. I am talking about groups like the Tatas, Birlas, Reliance and other multinationals of the world, including Vodafone and TCS (Tata Consultancy Services Ltd). Now these companies normally would not need a mid-sized bank. But we are not just ING Vysya; we are also ING. So we have global relationships; we have been involved with them overseas.
\nSome of the small banks which you mentioned, there is no commonality between their borrowers and ours because we lend to a segment that they don\u2019t even dream of.
\nWhat about mortgages and auto loans?
\nWhen I say mortgages, I include both home loans and loans against property\u2014it is roughly 18-19% of our total advances. We love the business. On auto loans, we did a project, we tried it at a few places, but the truth is that we are late entrants. We figured that for us to do auto loans at this stage doesn\u2019t make sense, it would cost us more than what we would earn.
\nPersonal loans?
\nThe personal loan portfolio which we started in 2006, we stopped at 2009; it was a very bad experience. But that\u2019s water under the bridge now. So we have launched it on a slightly different basis, primarily to our salaried account customers. Interestingly, the unsecured loans are behaving surprisingly There is an opportunity well and I am not talking about the entire industry. there.
\nPost-savings bank deregulation, do you see any strain on your net interest margin (NIM)?
\nIn the last quarter, it was 3.35%, which is decent. Eventually, savings bank deregulation could lead to margin compression, unless you couple it with the simultaneous increase in your lending rates. Now the one thing with which I am happy is that I think the two or three banks who have raised their savings account rate have also done an increase in their base rates.
\nAlso, the point you have to remember is that most economists are now saying that we are close to the end of the tightening cycle. We are not yet saying that is going to come down, but once it stabilizes, we will see it coming off. But most banks\u2019 NIMs are between 290 and 310 basis points (bps), at least 60-70 bps lower than 2008, when we were at the peak of the lending rate cycle. (A basis point is one-hundredth of a percentage point.)
\nThe point I am making is that even if it comes down, it will still be higher than it was and this may be the bottom of the margins. Because once interest rates go down, as you know, margins will come down.
\nOne thing that I have got to say about savings account is that I am supportive of deregulation of any sort. I am glad it\u2019s being deregulated, but keep in mind that for many years we used to ask for deregulation, because we wanted to bring the rate down from 3.5%. Don\u2019t forget that when interest rates come down, savings rate will also come down, and it\u2019s not as if it will only get high as far as the savers are concerned.
\nAnd that\u2019s why I am very reluctant to get very supportive of what you call price warriors, because if you are offering to the public 6% on a savings account, what happens when the overnight rates are 4%?
\nWhen are you going to hike your loan rates?
\nWe did after the September policy rate hike. By the way, I very diligently listen to the governor\u2019s speech every time and he keeps saying that he wants to see transmission of monetary policy, so we believe it is our duty to transmit monetary policy. So we diligently do transmit.
\nBecause he says so?
\nBecause we believe this is the right thing to do. We are waiting to take a decision on the savings account, and when we do take a decision on savings account, we could well revise our base rate as well.
\nYou frequently raise money from the capital market to support your growth, but this dilutes your return on equity (RoE) as well as earnings per share.
\nYes, we have raised capital in June this year, Rs 960 crore. Prior to that, we had raised money in August of 2009. So, there is a gap of two years. We have said that we have no intention of raising money for at least another two years as we do not need the capital.
\nYou talked about earnings per share, so if I look at the most recent profits we did and if I extrapolate that, it comes to over Rs 30. This is an all-time high. By the way, we are one of the cheapest banks in India.
\nNow you have got to remember that this is a bank which was making loses four, five years ago. What we felt that there is no point in saying that we are going to do it overnight; it\u2019s going to happen gradually and we want to do it in a way which is consistent and predictable.
\nNow RoE obviously will come down a bit when you raise equity, but again, it\u2019s not so bad. It came down to 12.5 despite having a lot of equity.
\nWhen do we see ING Vysya becoming an all-India bank?
\nWe are proud to have roots in the South. But things are changing. Last year, we opened 60 branches and of those 50 were in North and West and a little bit in the East as well. If I look at our wholesale business, we do business with the largest names internationally and nationally. They don\u2019t do business in the South; their business is happening all over India.
\nIf I look at my advances book, it is where the economy is. If I look at our largest branch network, it\u2019s Andhra with 180, but if I look at my largest branch network in a metro it is Bombay (Mumbai) with 36 branches. So yes, we are not there yet, but it\u2019s the same story I am saying that it is happening. We may not necessarily get up on a pedestal and shout that we are a all-India bank, but we are.
\nWe are a new-generation private sector bank with a strong international flavour, with strong international roots.<\/p>\n","protected":false},"excerpt":{"rendered":"
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