FE Best Banks | On deposits, we’ve done ourselves proud: Sumant Kathpalia, MD and CEO, IndusInd Bank

IndusInd Bank expects its deposit growth to continue to outperform the market in this fiscal. Managing Director and CEO Sumant Kathpalia tells Mithun Dasgupta the bank’s balance sheet growth would be led by its areas of domain expertise like vehicle finance and microfinance, as these segments are expected to bounce back after cyclical lows.

IndusInd Bank’s deposits growth rates were almost the highest among private sector peers in the first three quarters of the fiscal. What were the reasons for this? And what is the mid-term outlook for the segment?
IndusInd Bank has been focused on broadening the deposit franchise, with the objective of doubling its retail deposits in two years closing March, 2022. We are proud to say that despite the extended impact of the pandemic, we are well on course to achieve this huge milestone we set for ourselves. The bank has focused on growing its retail customer base across target segments — NRIs and domestic HNIs through specialised relationship teams, branch catchment-led household and business owners, and bottom-of-the-pyramid sections through our microfinance arm.

We expect our deposit growth to continue to outperform the market comfortably in the next financial year, with a host of new, digital-led offerings for retail and business customers due for launch. Our higher-than-market deposit growth correlates with the higher year-on-year growth in card & UPI based spends, which is backed by round-the-year persona-based and analytics-led offers to get our customers to give us a higher share of their spends wallet, which in turn leads to healthier balances. This, together with some very strong partnerships with fin-techs and other payment industry players, has helped the bank top the charts in the government of India’s MeitY comprehensive scorecard of banks in digital payments.

How does the bank plan to raise its CASA ratio further to lower the cost of funds? What are your customer acquisition strategies across segments?
The bank is looking to scale up its key retail segments to drive retailisation and low-cost deposits mobilisation. We recently launched a proposition for merchants and are in the midst of developing a mobile-first proposition for digital natives and adaptive (millennial proposition). These unique and innovative offerings will improve the CASA ratio even as we pursue new-age acquisition strategies (e.g. referral, influencer, content and universal app campaigns), focussing on high-quality sourcing with lower costs of acquisition.

The NRI business is one of the most profitable across banks and continues to be a key focus area for ramping up low-cost savings balances. The bank has 203 NR-focussed branches, especially in the metros and markets like Kerala, Punjab and Gujarat, and these are key drivers of NR client acquisition. It has also set up a 24/7 virtual digital centre for NRIs which ensures both non face-to-face client acquisition and remote servicing of NRI clients using video branch, state-of-the-art net and mobile banking, and WhatsApp banking.

We continue to expand our branch network at the pace achieved in the past. We are expanding our branches largely in 17 strategic home market cities and developed markets where we aim to gain CASA and retail-client market share. Our strategy in the affluent client segment is to offer best-in-class product propositions and customer experience and scale up the business in an efficient manner by growing our current account and NRI customer base. The PIONEER Banking programme for HNIs and business owners stands out in the industry for its curated and unique nature. This year, the affluent segment business will add over 20,000 premium clients, helping improve the bank’s CASA ratio and reduce the cost of funds.

Your disbursements gathered momentum in the second quarter of FY22 amid pandemic curbs, growing 10% year-on-year in the subsequent quarter. What is the disbursements growth that you are looking at in this financial year? Which customer segments are driving this growth?
With gradual restoration of economic activity, disbursements have picked up since the second quarter, and saw strong traction in the third quarter. These are now ahead of the pre-Covid levels for most segments. We saw loan growth of 10% y-o-y in Q3, driven by segments like NBFCs and SMEs on the corporate side, while LCVs, construction equipment and cards contributed to growth on the retail side. As the momentum has been maintained in Q4, we expect loan growth to accelerate going forward.

What has been the plan for expanding the branch network in 2022-23? Are you increasing your presence in rural areas?
We have the fourth largest branch network amongst private banks, and remain committed to growing the same, particularly in our focus ‘home’ markets which we have identified as growth accelerators. With a presence in over one lakh villages via our MFI subsidiary, we now boast of one of the largest distribution networks amongst private banks, boosting our deposits base. Over the last few years, we have complemented this physical reach with our digital DIY on-boarding capability for new-to-bank current, savings and fixed deposits, being amongst the first few banks to go live with video KYC as well as account aggregation facility for new and existing customers. Backed by one of the best product propositions in the market – with innovative product features, best-in- class partner offers and competitive pricing — we have been able to leverage our digital marketing campaigns very effectively to mobilise deposits from both the open market as well as our asset customers.

What will be the overall growth strategy of the bank in the next two-three years?
The operating environment has been challenging since I took over in March, 2020. The bank has nevertheless used this period to strengthen its strategic position. If we look at the parameters indicating our financial health, they are at their best levels in the last several years, if not in a decade. With the balance sheet poised for growth and the operating environment improving, we have seen a steady pick-up in growth in the last couple of quarters. This growth would be led by areas in which we enjoy domain expertise, viz. vehicle finance and microfinance. These segments have been at cyclical lows, and are expected to bounce back. The corporate loan book too has started contributing to growth since the realignment in FY21 and we expect the momentum to be maintained, with a focus on higher rated and granular exposures. A significant portion of our growth will be underpinned by digitisation as we continue to invest in tech and digital initiatives. We will also continue to identify and invest in new growth boosters, like merchant acquisition/affordable housing on the asset side and affluent/NRI on the liabilities side.

Our merchant acquisition business conducted through Bharat Financial Inclusion focuses on small merchants across tier-2 & -3 cities. Started during the Covid period, the active merchant base is three lakh spread across 300+ cities, with a loan book worth Rs 1,600 crore and 99% paying customers. We currently add 40,000-50,000 new merchants every month and are targeting a merchant base of 15 lakh in the next 2-3 years with a loan book of Rs 10,000 crore.

While we have also been offering home loans to our customers through HDFC, we are evaluating if the time has come for the bank to add the home loan segment to its portfolio. We will decide on that in the coming financial year.

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