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IndusInd Bank has tied up with a housing finance company (HFC) to originate and distribute mortgages for a fee. Under this arrangement, the loan will remain in the books of the HFC, while the borrowers would be customers of the bank.
Currently, home and personal loans together account for just 1 per cent (or Rs 227 crore) of the bank's consumer finance portfolio. The total consumer finance book is worth Rs 11,614 crore.
Explaining the rationale behind this move, Mr Romesh Sobti, Managing Director, IndusInd Bank, said the mortgage market is finely priced and the bigger players enjoy economies of scale.
“The bigger players get good margins. Our strength is origination and distribution. So we will do that,” he said, while announcing the bank's results for the fiscal 2010-11.
Fee income
During the current fiscal (2011-12), the bank is looking to step up its lending in the used commercial vehicle space. It has also received RBI licence for opening currency chests. These initiatives, along with its existing investment banking business and the credit card business it acquired from Deutsche Bank earlier this month, would add to the fee income.
“Fee income should be about 35 per cent of our total income,” Mr Sobti said.
For the quarter ended March 31, 2010, IndusInd Bank's net profits surged 75 per cent to Rs 172 crore, from Rs 98 crore last year. For the full year 2010-11, net profit increased by 65 per cent to Rs 577 crore (Rs 350 crore).
The bank managed to keep a lid on the cost of funds by taking recourse to refinance from Nabard and SIDBI, (about Rs 3,300 crore) and foreign currency borrowing. This helped to protect the margins, said Mr Sobti.
Cost of funds increased by 41 basis points and yield on advances, by 51 bps.
The first quarter of the current fiscal cost of deposits may be flat, but yield on advances could move up, as deposit re-pricing has happened more rapidly than re-pricing of advances, Mr Sotbi said.
This fiscal the bank is looking at a loan growth of 25-30 per cent, he added.
Shares of IndusInd Bank closed at Rs 274.65, down 1.81 per cent, from the previous close of Rs 279.7, on the BSE, on Monday.
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