V Vaidyanathan, executive director of ICICI Bank in charge of retail, SME and rural banking, feels the Indian financial sector is very healthy because of the regulatory requirements even for risk-free investments.
He says the bank wants to moderate its credit book and instead focus on low cost deposits. It's a strategy that is working very well for the bank, he tells Anirudh Laskar in an interview.
What's your reading of the global situation today?
The issue in global markets today is one of liquidity, not value. The larger issue is about confidence in counterparties. No one knows how long it will take to play itself out, but certainly, the response from the global regulators is very encouraging. The dust will settle sooner or later.
Many analysts say that the Indian banking sector is better placed than the rest of the globe. Is this just wishful thinking?
Look, the Indian financial sector is very healthy. As much as 34 per cent of deposits are in government securities and cash with RBI. I know of no other country in the world where regulatory requirement for risk-free investments are so high. The US and Europe would wish they had this, at least to an extent, today.
Look at the leverage ratios. Indian banks are leveraged about 10 times. Compare this with well known banks in the US and Europe which are often leveraged 14 times. Look at consumer loans to GDP. India is at 10 per cent. US is at 100 per cent. How can you even compare?
Indian banks were aggressive in calling customers for credit cards and home loans. What about the sub-prime credit market in India?
That is not true. There is no sub-prime credit market in India. Yes there was soliciting for loans in India, but banks did their due diligence before disbursal. If you want to know the true meaning of irrational, then visit the US.
In the US, look at any channel, and the only thing you will come across is debt-related advertisements. But do you see a single advertisement in India which says that 'if your loan is rejected, come to me'? The reason is not hard to see.
No bank in India would have given what they called NINJA (no income- no job-assets) loans in the US. In India, banks have traditionally seen the cash flow in the customers' bank statement as proof that the customer can honour the payments.
How will consumers be affected?
The consumer is now more cautious than ever before. There is a big change. The consumer is looking at reducing his leverage. He doesn't ask for the maximum loan - he seeks to keep leverage as low as possible.
The second change is: the consumer is more amenable to consumer education. A year ago, we started an education series by advertisements. After three months of running it, we tested results. It had just not registered in the minds.
Then we re-launched the same about six months ago in a new format. We re-tested the results. We were surprised with the results. The same consumer was far more amenable to listen about the need for financial planning.
Will credit quality suffer in the high interest rate environment. Will we see more defaults?
We have been very selective in taking in new customers. Credit always follows a cycle. It starts low, pick up and eventually peaks out. We have tracked this time and time again across all businesses and it is the same thing. It is a flattish S shape.
We started our process of tightening credit norms way back in 2006 when interest rates started increasing. Since then we have continuously revised our norms to choose better credit. All this is showing results now - the credit losses are comfortable and stable. We are confident of keeping it this way.
Other banks are growing asset book by over 30%.
Well, they do what they believe is right for them, we do what's right for us. We believe we want to moderate the credit book and instead focus on low cost deposits. It's working very well for us.
Our CASA has rapidly moved up from 22 per cent to 28 per cent in 15 months. As per the last results, our savings balances were up 33 per cent year-on-year. We are defining our growth by growth of branches, number of customers, and growth of liabilities.