News Column

ING Wants to Step Up Loans to Individuals

Feb 18, 2013

Joel Rebello

ING Vysya Bank Ltd, promoted by the $33.91 billion (around Rs.1.8 trillion) Dutch financial conglomerate ING Groep NV, plans to increase the share of credit to individuals in its loan book in pursuit of higher margins and also because bad debts in the segment remain under control.

"Our total loans to individuals is around 25% (of the loan book). We will like it to be higher -- 25% could go to 30% surely," Shailendra Bhandari, managing director and CEO, said in an interview on 12 February. The bank is pushing products such as loans against property, personal loans and may launch its own credit card, Bhandari said.

Currently, 80% of the bank's loans to people are mortgages, which yield a lower interest rate compared with other kinds of credit to individuals. Bhandari said ING Vysya had stopped giving personal loans in light of the financial crisis in 2008 but the product has done well since restarting in 2009-10.

"Retail credit quality is outstanding in the current cycle, even personal and credit cards. One thought for us may be we should do more on retail. We are going to be customer-centric but bulk of it will be internal," Bhandari said.

Bhandari's cautious strategy, which saw the bank focus on credit to large companies and bring branch expansion temporarily to a halt, has allowed the bank to avoid the pitfalls of the burgeoning bad loans that have hit rivals as the economy slows. That strategy has been rewarded by shareholders who have sent the stock rising 65% over the past year.

With 532 branches as of December 2012, ING Vysya has fewer branches than its south Indian peers such as Federal Bank Ltd, which has more than 1,000.

The Bangalore-based bank didn't open a single branch for five quarters starting July-September 2011 until it opened five in the quarter ended December 2012. Bhandari said expansion had been put on hold in order to improve the operating efficiency of existing branches.

"Both advances and deposits grew by over 20% and profits by 36% (in that period) so that was to test the hypothesis whether we had operating leverage. We opened five in the last quarter and will open eight to 10 every quarter from here on," Bhandari said.

ING Vysya currently sells credit cards processed by a US bank in India. However, that agreement is coming to an end in 2013 and Bhandari said the bank is inclined to launch its own cards.

"We are looking very closely as to why we shouldn't launch it by ourselves. Right now the loan is on their book. I think if we will continue in the same way we do with personal loans, which is look at internal customers, we will do fairly well. If we do this, then we will do it internally first," he said.

Bhandari joined ING Vysya in August 2009 and has gradually shifted the bank's focus from medium-sized companies towards larger ones.

Loans to large companies make up 70% of the bank's wholesale loan book now from 42% in 2009. Bhandari said the change was due to the fact that medium-sized companies suffered the "maximum pain" during an economic slowdown.

Bhandari's strategy seems to have worked. ING Vysya's net non-performing assets (NPAs) as a percentage of net advances has dropped to just 0.05% in December 2012 from 1.20% in March 2009.

"The reason I liked large companies is because their credit cost is virtually zero, so the risk-adjusted returns are very good. That was the gradual change we did where we decided to freeze for three years the emerging corporates, where most of the banks suffered maximum pain," he said. In 2009, half the wholesale loans were to medium-sized companies.

Rajiv Mehta, research analyst at India Infoline Ltd, said the bank will need to be careful that its cost-to-income ratio doesn't go out of control while expanding branches.

"This is a quality mid-sized bank with high margins and robust asset quality. From hereon for it to be re-rated it has to ensure that its return on assets improve, which will depend on its cost-to-income ratio," Mehta said.

On Monday, ING Vysya ended at Rs.580, down 0.22%, on the BSE, while the benchmark Sensex rose 0.17% to close at 19501.08 points. BSE Bankex rose 0.13% to close at 14164.29 points

Bhandari said ING Vysya is now focusing on improving its cost-to-income ratio to 50% for the full year from 55% in the quarter ended December. That will help the bank improve its return on assets to 1.5% from 1.3% currently. However, he didn't give a time frame for this. Mehta however said ING Vysya's cost-to-income ratio will only decline gradually. "I expect them to end this year at 55.5% and will come down to 50% in the next couple of years. But a steady branch expansion means that the bank may be successful in keeping costs in check," he said.

At 12.5%, ING's capital base is higher than the Reserve Bank of India's mandated 9%. The bank will take a call on raising more equity in June 2013, Bhandari said.

However, mergers and acquisitions are not a priority for the bank, said Bhandari, who was at the helm of Centurion Bank of Punjab, when it was taken over by HDFC Bank Ltd in 2008. "I believe we still have a lot of leverage within our own system. We can pump much more business through our existing branches as it is... I am not sure whether for us it will make sense to look at the south or anywhere outside because there is huge opportunity for us to squeeze more from our existing infrastructure," he said.





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Source: (c) 2013 the Mint (New Delhi)