There couldn’t have been a worse time to become a bank CEO than March 2020. When Sumant Kathpalia became the CEO of IndusInd Bank, the industry was caught in a perfect storm. IndusInd was particularly hit because of structural imbalances.
There couldn’t have been a worse time to become a bank CEO than March 2020. When Sumant Kathpalia became the CEO ofIndusInd Bank, the industry was caught in a perfect storm. IndusInd was particularly hit because of structural imbalances. As the second Covid wave now takes its toll, Kathpalia tells Joel Rebello and MC Govardhana Rangan how different the story would be from the first exposure to the dreaded virus. Edited excerpts:
The Indian banking system — IndusInd in particular — appeared to be on the brink just when you were getting to the corner office. Since then, things have stabilised. How was the journey?
When I came in, we had problems on both sides of the balance sheet. Initially, my focus was on balance sheet realignment and strengthening. We are today at 17.38% capital adequacy ratio, we have Rs 40,000 crore of excess liquidity. We wanted to improve our provision coverage ratio and we are at 75% compared to 53%. We have surplus provisions of Rs 1,600 crore. Credit to deposit ratio is lower at 83% from above 100%. We also made sure our employees were safe and our branches were up and running during Covid and all our digital channels were working. If you focus on the basics, and get the leadership aligned to a common objective and a common vision, the results follow.
The numbers speak for themselves. That means you changed the way the bank functions. What is the change?
The basic difference was that we had a shared vision and our objective was to get the bank on track. There was a little bit of hurt that the bank was being compared to lower tier ones. Issues relating to the bank were high at that point of time and we had to get back the pride of the bank. I think we bounced back because we had lots of pride and that is what made the team work. If you look at the style of working, it is more collaborative and the whole management team debates every decision before we make a move. A regular collaborative approach is what is really working out for us.
Last year, you had to fight a flight of deposits that made the bank wobbly. Have you addressed it?
There were four or five initiatives we took on liabilities. In the initial phase, there was no other way but to increase the term deposit rates. We increased it to 7%. Secondly, we launched two business verticals, the affluent and NRIs. I am proud to tell you that our affluent business is now at Rs 50,000 crore — 60% of which comes to retail liabilities and this business will continue to grow. We launched the NRI vertical where we had a 1.8% market share and now moved to 2.1% market share. We have incremental flows of about 8% in the NRI business. We also expanded branches which helped in CASA (current account savings account) growth. Fourth, we launched the merchant acquiring business which helped both the asset and the liability side of the business and 35% of the merchant acquiring business was self-funded.
How do you see the Covid second wave playing out for the industry and IndusInd?
It’s too early to predict what will happen due to Covid 2.0. The first 20 days of April were fine and did not affect business much. Collections may be a percentage point lower. It is only in May where we will see what really is happening. We are evaluating and will put a board policy by June as per RBI policy and decide what we will restructure depending on the flow and outlook in May. If the situation improves by the end of May, the restructuring will be very low but if Covid 2 does not play out the way we are thinking and the positivity rate increases and things don’t open out, then there will be restructuring. We will be able to know only by the first week of June.
Last time we had a moratorium which is not there this time. Can you explain what difference that will make?
Our view is that the RBI has been very proactive and prudent in measures taken to support the economy. The restructuring is also for individual accounts and we will have to see how it evolves. This time the effect is mostly on the MSME and individual sides and they have tried to address those cases. You may defer the payment and start after three or six months depending on each case. This time because accessibility is an issue in some cases or businesses are closed in some cases, I think we will restructure. And as the economy comes back, these businesses will too bounce back. These are not bad businesses and there is no doubt about their capability to pay back.
You have built an extra Rs 40,000 crore liquidity. Won’t that be a drag on profitability?
It was important to build this buffer because we wanted to get back the confidence of the market. In the first three months of my taking over in March, April and May there was a liquidity crisis. We kept the excess liquidity from Q1 itself. It’s a drag on our profits but I think you will see us keeping maybe 50 per cent of that excess liquidity all the time for various reasons. We need to get our retail deposit proportion which is at 38 per cent, and we want to get to 50 per cent before we release the liquidity. And that is built into our projections and results.
You have been focusing your energies on stabilising. Where does the growth come from?
As we sharpened our corporate focus, we did sell down about Rs 9,000 crore of corporate assets last year. Now, all of that is over. While it shrank in the last four quarters, I think the growth will start coming back. We have seen good demand for working capital. We are focusing on A-rated and above papers. It may not give us margins but it will give us fees. We are cautious on MSMEs and are waiting for Covid to play out but it will also grow. Then there are non-retail assets, or 17 per cent of our book. That includes unsecured loans, loans against property, and kisan credit cards. Unsecured loans including credit cards we have slowed down and we are still waiting for Covid to play out to grow that book again.