Mobiles to replace POS terminals in future, says IndusInd Bank CEO Romesh Sobti

Foreign banker Romesh Sobti, 64, has transformed the private sector IndusInd Bank in the last six year. He brought his top management team from ABN AMRO Bank, is focused on keeping the customers happy, rewarding shareholders and also engaging with employees. The MD and CEO of IndusInd Bank talks about the bank's 20-year journey with Business Today. Edited excerpts:

ON COMPLETING TWO DECADES

This 20-year landmark establishes a couple of things. The longevity is a function of risk management and capital management. If risk goes wrong, your capital gets eroded. In fact, that has happened to many private sector banks. Out of the 10 banks that got licensed in the mid 1990s, only five survived. Out of five, three were institutional backed (ICICI, HDFC and Axis). Only one, which was a private promoter-driven bank, survived. We have also gone through the same process. We survived because capital came in through the merger with well-run profit-making Ashok Leyland Finance, which was also a large entity and a healthy one.

ON THE CHANGES IN THE BUSINESS MIX IN THE LAST SIX YEARS

When the new management came, there were no retail products, except for vehicle financing. Over the next six years, we have covered all the retail products. We bought the credit card business from Deutsche Bank. Then we added loan against property followed by gold loans, personal loans, business loans and loans against shares. We have also grown the vehicle financing book. In the two-wheelers financing, we are today [one of the] top two financers in the country. In fact, vehicles remain our core. It's a profitable core. We have domain knowledge and domain domination. Six years ago, the break-up was vehicle financing (retail): 60 per cent, and corporate: 40 per cent. Today, retail is about 43 per cent and wholesale is 57 per cent. With retail banking building up momentum, we believe in the next 12 to 18 months, we will go back to 50:50 per cent for retail and corporate banking. I believe this should also have a positive impact on interest margins.

ON UNIVERSAL BANKING CONCEPT
It pays in this market to be a universal bank. You can ride the cycle better. We will work on both sides of the balance sheet and work with all the clients and product and services. You cannot just be a lender focusing on building assets, but also have to raise funds on the liabilities side. We never wanted to be niche, as you are more prone to cyclical risk.  

ON PRODUCT INNOVATION

We are committed to using technology to find, serve and engage with [our] customers. We call it responsive innovation. Our innovations have created a good differentiation in the market. This has helped in new customer acquisition. Five years ago, we used to acquire 4,000 to 5,000 customers every month. Now, we acquire 50,000 to 55,000 new customers every month. For a bank like ours, which is mid-sized, low profile, low brand, how do you make [the] customer bank with you? We have to do something (innovations, etc.) [for customers] to transact with us.

ON DIGITAL BANKING INITIATIVES

There is a lot happening in the payment space. The whole payment world is going to change. Mobile phone as a payment instrument has already caught up in many countries. Today, you have a point of sale (POS) terminal to use debit and credit cards. Many small traders cannot afford this POS machine because of the high cost involved. That way mobile to mobile transactions will work in a very cost effective way. In the UK, there is a service they started where you have to put the mobile number of the recipient for payment. It connects through the data base, where the mobile number is connected to the account and the money goes to recipient account. It is going to come here [in India] also. The digital wave is going to impact the whole payment space in India. In Kenya, the mobile operators, who were allowed to undertake payments, have already taken almost 19 per cent market share of the banking system. Frugality will be the winner. The POS terminals will be replaced by mobile in future.

ON GROWING THROUGH INORGANIC ROUTE

The inorganic growth is only possible when you have acquisition currency and the management bandwidth to acquire. We believe that in the current state, we have both. We didn't have it five years ago. Today, our market cap is also very high (Rs 40,000 crore-plus). The acquisition make sense if it creates additional value and a multiplier. You don't acquire to add one plus one. You have to answer key questions: does it do more for customers, and does it do more for shareholders and, of course, employees? If it fits all the bill, we are happy to acquire. The acquisition space is still limited in the system. The ING-Kotak merger is sort of a testimony that two healthy banks can merge. Previously, if you know, only distressed banks got merge.

ON THE MERGER OF PSU BANKS TO CREATE SIZE

Size may create further inefficiencies. The largeness in itself doesn't create competitiveness. But what will creates competiveness in the PSU is they become more efficient banks, more completive on sales side and better equipped to handle risks, etc. As a consequence of merger, if you create a bank with better capitalisation, better risk manager and better distributor of product, then certainly you get competition.

ON THE NEW BANKING CANDIDATES  

The Indian banking space is expanding, and it is not stagnating. So, there is room for more players and further competition. One has to see whether the business model is disruptive or a takeaway business of certain type. But the banking space is itself expanding, both on retail and corporate side.