A Cut Above

- Salil Panchal

Given the mountain of bad loans piling up in the books of banks, dark clouds of a crisis have been hovering over the Indian financial system. Nearly a dozen state-run banks are under regulatory watch besides two high-profile CEOs from the private sector—Chanda Kochhar of ICICI Bank and Shikha Sharma of Axis Bank—coming under the scanner for governance issues. Amid the gloom, IndusInd Bank, led by its MD & CEO Romesh Sobti, appears to have muscled its way to find its rightful place under the sun.

Sobti, 68, took charge of the Mumbai-headquartered lender in February 2008, when IndusInd was a dwarf compared to its peers. Since then, the bank, promoted by the Hinduja Group, has seen a near-15fold jump in profit, a six-fold jump in net interest income, a well-diversified loan book and an improvement in several key performance metrics.

The growth has been steered by Sobti, who came from ANZ Grindlays Bank (now Standard Chartered Bank), succeeding Bhaskar Ghose. Bringing in a new team, Sobti set about to restructure the balance sheet, boost profitability, improve the business mix and expand through current account-savings account (CASA) growth and acquisitions.

When Sobti took charge, IndusInd had a high share of relatively low-yielding fixed rate loans in its book. At a meeting with analysts in January 2008, the bank said that only around 31 percent of its total loan book was on floating rate and most of it (67 percent) was fixed-rate loans. A floating rate helps a bank improve its earnings projections and net interest margins. Sobti has since ensured that the bank has a better mix. Now, of the total corporate loans, 60 percent is linked to the Reserve Bank of India’s (RBI) marginal cost of funds based lending rate (MCLR) and out of total loans, 40 percent is linked to MCLR. Its corporate loan book has a tenure of 270 days on an average.