The Hindu Business Line : IndusInd to leverage ALF network to grow

While the bank is awaiting RBI's licence — expected any time now — to convert 80 of the former NBFC's branches to bank branches it has started to put the network of over 1,000 other ALF branches and 3,000 sub-brokers to good use — selling financial products.

One of the factors that negatively differentiates IndusInd Bank from the rest today is the low share of low-cost deposits — current and savings account deposits account for 11 per cent of the total deposits. Since more branches mean more low-cost deposits, branch expansion is crucial for the bank, which today has 131 branches.

There lies the significance of the conversion of 80 ALF branches into bank branches. When the expansion happens, the bank expects it will be able to raise its low-cost deposits to around 25 per cent of total deposits, by next year.

But doing up an NBFC branch into a bank branch that takes deposits and serves customers calls for additional expenditure of Rs 18-20 lakh.

IndusInd Bank expects that its focus on distribution business will more than compensate the cost of branch expansion. The bank believes that the distribution business is at the take-off point.

Mr S. Nagarajan, Joint Managing Director, IndusInd Bank, offers some supporting figures. Last year, the bank earned a commission income of Rs 7 crore selling New India Assurance's products. Comparatively, in the first half of the current year, the bank earned Rs 8 crore.

Mr Nagarajan expects not less than Rs 20-crore commission income in the full year 2005-06.

In an interview to Business Line, Mr Nagarajan, who was formerly the Managing Director of Ashok Leyland Finance, said that ALF had about 3,000 sub-brokers, who mobilised deposits for the NBFC.

"We have a good working relationship with them," he noted, adding that the bank intended to convert a good number of them into mutual fund sellers.

The programme to sell mutual funds through them is expected to start in January. Over time, Mr Nagarajan reckons that even if the bank can get 5 per cent of the mutual funds market, the commission income would work out to more than Rs 50 crore.

IndusInd Bank has another hidden asset — NPAs. The bank has been following a system of writing-off NPAs entirely, rather than providing for them. In the last three years, the bank wrote off close to Rs 500 crore worth NPAs.

Mr Nagarajan said that recoveries were happening — last year Rs 70 crore and this year, about Rs 90 crore. In the next three years, the bank expects to get back about Rs 200 crore.

These NPAs were legacy corporate accounts, but today the advances book is growing mainly through a build-up of retail assets, again thanks to the operations of the Vehicle Financing Division, the new name for the former ALF.

The bank expects vehicle loan disbursements of Rs 5,700 crore this year compared with Rs 4,100 crore last year, which included Rs 300 crore of bought-in portfolio.

Mr S.V. Parthasarathy, Executive Vice-President, who looks after vehicle financing, told Business Line that IndusInd Bank's advances to used trucks would increase to Rs 800 crore this year from Rs 500 crore last year.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page