IL&FS is a one-off case. Beyond that, other indicators are intact: Romesh Sobti, IndusInd Bank

IndusInd Bank’s net profit fell 62% year-on-year in the quarter ended March 2019 as the bank made provisions for its loan exposure to the IL&FS Group. Barring this exposure though, the bank’s core profitability remained intact. In an interview to Joel Rebello, IndusInd CEO Romesh Sobti explained the reasons for the rise in provisions and the outlook for fiscal 2020.

Edited excerpts:

What’s the reason for the increase in provision?
You have to split the provision into a particular specific provision and the business as usual (BAU) provision. The big chunk came from the infrastructure group in which the specific provision for the quarter was Rs 1,120 crore. We also reversed two quarter interest of Rs 153 crore which gave us a total impact of Rs 1,273 crore in Q4. We have now provided 70% for the holding company and 25% for the operating companies. Apart from this, the BAU credit cost is 19 basis points which hits your P&L because of NPAs, and our total credit costs for the year is 57 basis points, well within our target of 60 bps. If you include IL&FS, it is 108 bps, but it’s a one-off.

There is also speculation on other risky exposures the bank may have…
We waited till we had this platform of results declaration before we made some statement. These names put together from a media company, housing finance company or a conglomerate are 1.9% of our funded and non-funded exposure. It is not a single day overdue in our books and don’t even come under the SMA 1 and SMA 2. We have 140% of value of security against these exposures, of which close to 60% is listed liquid securities. We have chosen not to sell them because they are standard and we don’t need to. For the coming year, we still believe that keeping credit costs at 60 basis points is a fair assumption. In FY18, it was 62 basis points, and in FY19 (excluding IL&FS) it was 57 basis points, and we are saying 60 bps for FY 20.


Are you now comfortable with the level of provisions?
It’s not a thumb in the air sought of estimation; it’s based on realisable value of assets in the holding company. There are Rs 24,000 crore of assets and the realisable value we are assuming is 20%, and on that basis 70% provisioning is a good level. On the operating company, the 25% has a possibility of a write-back. If need be, this provisioning can be used for the other side as well and we have not used the floating provision. The emphasis is to look beyond IL&FS and look at the underlying. Loan growth, deposit growth, fee growth are all intact. Credit costs are intact and cost to income ratio ex-IL&FS is the same, or slightly below. NIM ex-IL&FS is slightly better. This is the way forward, and to this, you super impose Bharat Financial.

Why is the merger with Bharat Financial taking so long? Is there a change in deal structure because of the delay?
We have waited months and it’s in the last stages. The court has reserved it for orders and hopefully the outcome will be a final order after the courts open on May 27. We will also publish the consolidated umbers for the full financial year 2019, Q4 FY18 and also Q1 FY20. That will give a fair idea of the way forward for the combined entity. There is no change in the structure. Bharat Financial was always meant to be a subsidiary. It is a merger followed by subsidiarisation of the network. The balance sheet and P&L will sit in the bank. This becomes a BC but continues to do exactly what they are doing today. So there is no change. We will get the advantages of the synergies in terms of cost of funds, priority sector lending, risk weightage fall.

What are the bank’s plans for finding a successor to your position?
Succession has occupied the mind of the board for more than five years. When I turned 64, it was not certain whether I will be allowed beyond 65 and now I am 69. The board started debating on the whole issue of succession. That succession planning has not been obstructed or clouded by all this talk of extension and things like that. That stays on its own course. If anything of this nature happens, it happens. If it does not happen, our plan A continues. Five or six months before my retirement, there would be a successor in place. We are not in touch with RBI at this stage. As things stand today, the RBI has said that retirement is on March 2020. We are going on this basis. If there is a change, a whole different line of action will happen but it’s not presumptive.