In a recent interview with CNBC-TV18, Sumant Kathpalia, the Managing Director and CEO of IndusInd Bank, expressed his confidence in the bank's current financial standing. He stated that the institution does not see the need to raise capital at this time.

Kathpalia remained steadfast in his assessment of IndusInd Bank's financial health and its ability to weather any potential challenges that lie ahead.

Below is the verbatim transcript of the interview.

Q: The plain vanilla question – 21 percent is very good loan growth. Is this a maintainable pace? Are you seeing enough demand on the ground?

A: We do see enough demand specifically in our domains. So if you look at our growth, our vehicle finance unit came in at a very good growth of 21 percent year on year (YoY), our microfinance came in at 14 percent, our other retail came in at 27 percent driven by unsecured as well as merchant acquiring business, which has done very well. And of course, our corporate bank, specifically in the SME and the MSME side, gave a 10 percent quarter-on-quarter (QoQ) growth. So I think this was broad-based. We believe it's sustainable because we play in those businesses where we have a right to win. And we believe that that's going to drive the growth as we go move forward.

Q: Among the businesses you are best known for is vehicle financing. One almost looks at it almost synonymous with IndusInd. Now, when we spoke to the CV guys, and even when you look at the May, and June numbers that were announced, there is clearly a slowdown in CV sales, in PVs, compact cars have been actually badly, and only SUVs have done well. So is it going to be a fight there to be able to produce a 20-21 percent loan growth?

A: We are well diversified in our vehicle finance portfolio. We have six categories of vehicles where we play and CVs are one of them. You're absolutely right. I think the growth will be tapered to around 8-10 percent this year. And that's on the volume side, but if you look at the price variants, that will be another 8-9 percent. And if you're gaining market share - so we're very confident that we will maintain our growth rate at that level, because of the price variants, the volume variants and the gain in market share all playing together.

Q: Speaking of claiming market share, we now have a behemoth in HDFC Bank, which is going to aggressively look for deposits. Of course this quarter they didn't because they had overdone in quarter four but they have to replace the HDFC maturing liabilities and want to grow their own Rs 20 lakh crore balance sheet with alacrity. So costs will go up, do you think this is the best you can do in margins, does it get better than 4.29?

A: So we've always said our margins will be range bound between 4.2 and 4.3. That's been our direction to the market. And I think we believe that that's the right margin in which we will play in. Of course, our cost of deposits are high and we believe that the cost of deposits will start coming down in quarter one of next year and you will start seeing the decline in the cost of deposits as we move forward.

Q: That's provided HDFC Bank allows, isn't it? That's something that bankers keep mentioning and keep whispering?

A: There has always been competition. Every bank will have its own unique strategies to garner deposits. If you think that we copy the big banks, I think our cost-to-income ratios will fall flat. So we have to do things differently. And if you would look at our affluent business, the NRI business, I think we are gaining market share. In our home markets, we gain market share. So we play in different markets, we play in different segments, and gain market share of those segments.

Q: Can you tell me what is your fixed to-floating loan percentage, how much of the loan is floating?

A: 48 percent of our book is floating and 52 percent of our book is fixed.

Q: Now in a context where Reserve Bank rate hikes have peaked, this might work to a disadvantage in terms of you not being able to price your loans higher, and therefore, pressure on margins?

A: I've been hearing this discussion on pressure on margins for the last six quarters. And if you go back and see our margins, it's been very consistent around 4.25. The beauty of a book is it is self-balancing. And now if the cost of deposits goes down, the retail book will start giving higher margins because we book the loans at a higher yield, at this point in time on the fixed rate book.

Q: There have been repeated warnings from the Reserve Bank of India on unsecured loan books. And just recently, there was a CIBIL press release, which was indicating some pressure with credit card loans. Of course, this is a dated report, it dates to the period ending March 31. But still, if the trend has continued, there is a problem with unsecured loans and Reserve Bank has sent out those letters to NBFCs and banks. Do you think that we should worry about what is growing very well for your unsecured loans?

A: Look at the business - while the percentage growth may be higher, the unsecured which is a non-MFI book is only 5 percent of our book. So we've always been static on that growth. Of course, we were 4.2 percent and we've gone to 4.8 to 5 percent. But that's where we will be. So we have always been consistent in our commentary that because we have an MFI book, which is at least 12 to 13 percent of our books, our unsecured businesses other than MFI will be 5 percent of our book. And that's where we are on this book. So we don't have such a big exposure on cards as what the market seems to be because we're not growing that book very rapidly. When you see a percentage growth, it is coming from a very small base. And that's why you see the percentage growth.

Q: How are you looking at the year ahead the next three quarters, what are likely to be the growth levers for you, and for that matter, even profit levers?

A: I think there are three levers that will drive our growth. One is, of course, the loan growth. And we've always said that our loan growth will be in the range of 18-23 percent. Our domains are coming from cyclical loans, and we believe our domains will continue to give us growth. We have not grown on microfinance book last quarter and you will see that growth coming back this quarter. New additions of products, which we've added will also give us growth like merchant acquiring business, and mortgage business and I think you will start seeing that growth.

Number two, our cost of deposits will start tapering down. From quarter three onwards, you will start seeing a smaller decline in the cost of deposits. But by quarter four of this financial year, you'll start seeing - and that will start increasing the margin. And the rest we've said is our credit cost will be between 110-130 basis points (bps). So we still have a way to go. We are at 132, we should be at 110 to 130. And of course, the operating leverage, which is the cost-to-income ratio will be settled down at 45 percent for this year, against 45.6, which we provide. So if you look at it, we're heading towards the 2 percent RoA business. And those are the levers that will play for us.

Q: You're carrying a contingency buffer as well. So I guess there is still some elbow room for a lower credit cost. This is more an industry question as a veteran in the sector - do you see major disruption because of Jio Financial Services on the one hand? Is that likely to be disruptive and push down the rates, undercutting possible?

A: Competition is always healthy. It depends on which segments you're playing. I've always said lending business is not a prepaid business, it is a postpaid business, you have to collect what you lend. So I think every lender has understood that while it is easy to grow the book, the balancing of the portfolio, and the quality of the portfolio is what sustains the business.

Courtesy: CNBC, TV18