Would you like to diversify in the next two years?
Until and unless you diversify, your revenue flows will not go up. So, four things we are working on.
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First, microfinance. A bank in Tamil Nadu has a microfinance portfolio of Rs 10,000 crore. We didn’t have anything even as we are also based out of Tamil Nadu. So, what we did, we partnered with three entities one-and-a-half years back. We started taking baby steps and the whole portfolio outstanding is around Rs 180 crore now. And we have learned every lesson that someone is supposed to learn. With these understanding, now we can ramp up… to Rs 500 crore, Rs 600 crore or Rs 700 crore.
Will you be lending to MFIs or lending directly to the bottom of the pyramid customers?
Lending to MFIs is a regular affair though we have reduced the exposures now. What we have started doing recently is directly to the bottom of the pyramid through business correspondents. We have three big partners. It is working well.What are the other new areas you are exploring?
Other areas in the pipeline are loans against mutual funds and credit cards. We are not in the credit card aggressively, though we have created a platform. We have about 80 lakh BNPL (buy now pay later) customers through a partnership with Amazon. And we have a vintage of four years with them. Now we are planning to offer credit cards to a few of them, with good vintage. That will help in the card business we are planning.
Many of our HNI customers, who have credit cards from other banks, are being approached by these banks for other businesses. We are planning to offer them credit cards in a very selective way. These customers are a gold mine for us. So, we started working on that credit card. We will be launching in a month or two months or so.
What is the fourth area?
We vacated the housing finance sector about two years back because the yields were low: 8, 8.25 and sometimes 7.75%. It didn’t make any sense for us. See, if your term deposit rate is 7.2%, and you are lending housing at 8% after keeping CRR (cash reserve ratio), SLR (statutory liquidity ratio), there is no margin in it. That is the reason I told our people you focus on the loan against property where the margins are good. There also we are getting the property, and the pricing is at 9.5%.
But now we found a lot of opportunities in affordable housing. I’m not talking about the micro lap, micro lending I am talking about home loans between Rs 20 lakh and Rs 50 lakh. We did homework and all. We have engaged an agency for lending. Likewise, another two partners, we have engaged with them for the co-lending purpose.
These three-four areas can push us to the next level. These will help us diversify and improve the yields, rather than totally focusing on the core area where continuously, if at all something is there, you will be shattered.
What are your plans around corporate loans?
Our corporate loan share came down to 14% from 40% sometime in 2019. Now we again see some opportunities in corporate and are planning to reverse the trend. Progressively we want to take it to a 80-20 ratio. We will take the corporate loan ratio to 20% in the next two to three years. This is a kind of diversification. We started this journey last year when we grew our corporate book by 12%. We also have another strategy of credit substitution.
Could you elaborate on the credit substitution strategy?
What we are doing is when a few of our customers have working capital requirements, instead of giving working capital loans, we subscribe to their non-convertible debentures or bonds or commercial papers. The advantage of taking the treasury route is, we don’t need to do asset liability management. One more disadvantage in giving loans is, if some bank gives a lower rate, the corporate comes and tries to renegotiate the rate at which they borrowed. Now if it is an investment, the rate is locked for one or two years. At least I am safe that way. Last year, we did around Rs 900 crore of such credit substitution.
Which corporate sectors are you targeting?
We are finding opportunities in commercial real estates and lease rentals. Suppose now people go for, let us say, sort of a data centre. So, people rent out these sorts of big premises. Likewise, warehouses. Like Amazon and all. They take it and go on paying rent. So, a lot of lease rental discounting opportunities are there for you.
What is the business and profit guidance for FY27?
Last year we said we can be around one or two percent above the industry. It happened so. The industry growth was 16.1% and we are at 17%. This year also, we are saying the same. Suppose tomorrow there is no demand and industry grows only by 11%, we’ll be growing by 13%. That’s what we thought. If I commit 16-18% and if the industry is not growing, we will have to take wild risks to meet the commitment. So, we are saying we will grow one or two percent above the industry.
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On deposits, we haven’t given any guidance, instead we want to maintain an LCR (liquidity coverage ratio) of 115% to 120%. To maintain that level, what all deposits are required, that we will raise. It can be 12%, 13% or 14%.
We said our net interest margin can be between 3.75 to 3.8% as against 4.25% seen in the fourth quarter. Two reasons for this. First, we are expecting the deposit cost to rise, even if the repo rate is unchanged. We are finding a lot of tightness in the market as far as the deposits are concerned. If credit growth happens without matching deposits growth, we may have to pay slightly higher rates on the deposits.
Second, we had come out of a few other sectors like housing loans, vehicle loans because of margin pressure. But if we lose customers now on account of the pricing, getting them back will be difficult. That is the reason we wanted to take a call on compromising yields to some extent and start doing these businesses. And consequently, we may have a lower margin.
We have given a guidance of between 1.7 and 1.8% for return on assets.