ING Vysya Bank Ltd. (VYSB), the only Indian lender to be controlled by a foreign company, plans to expand credit at a faster pace than local rivals even as the economy slows betting that borrowing costs and defaults will decline.
India’s central bank will probably cut the amount of money banks are required to set aside as reserves as well as the repurchase rate by a quarter percentage point next week, ING Vysya Chief Executive Officer Shailendra Bhandari, 53, forecast in an interview in Mumbai. The Bangalore-based bank is backed by ING Groep NV (INGA), the biggest Dutch financial services company.
The lender will increase credit to mid-sized companies and households in the world’s second-most populated nation as cheaper borrowing costs reduce default risk. Bhandari predicts ING Vysya’s loans will rise more than the central bank’s estimate of 17 percent growth for lenders in an economy that grew at the slowest pace in nine years.
“Medium-sized banks can always grow faster if they focus on the right businesses as they are more nimble in finding the right opportunities,” Nitin Kumar, a Mumbai-based bank analyst at Quant Broking Ltd., said by telephone yesterday. “ING Vysya’s asset quality is good and the bank has avoided many sectors that are under stress.”
India’s economy expanded 5.3 percent in the three months through March. It may grow 6.5 percent to 7 percent this year, Montek Singh Ahluwalia, the deputy chairman of the nation’s planning commission, said on June 8, falling short of Prime Minister Manmohan Singh’s goal of 9 percent annual gains.
Rising Defaults
The slowdown has put pressure on corporate borrowers including airlines and developers. Air India Ltd. is getting a $5.7 billion government bailout while Kingfisher Airlines Ltd. (KAIR) was forced to shut some services because of a cash shortage and losses. At least three companies including Hotel Leela Venture Ltd. (LELA) have also missed convertible bond payments this year.
Soured loans may more than double to 5.8 percent of total advances by March 2013 in a worst-case scenario if the economy continues to falter, the Reserve Bank of India estimated in December. Fitch Ratings said last month that the slowing growth is worsening lenders’ balance sheets.
ING Vysya has curbed its default ratio by avoiding loans to power companies, real estate developers and airlines, Bhandari said in Mumbai on June 13. The bank’s net bad loans narrowed to 0.18 percent of total advances for the year ended March 31, from 0.39 percent the previous year, it said April 24.
“I have been telling people from 2010 that because of high interest rates and the slowing economy, bad loans will rise,” he said. “Hopefully, the worst might be over.”
Stock Performance
ING Vysya fell 1.3 percent to 331.4 rupees in Mumbai yesterday. The stock has risen 14 percent this year lagging behind the 24 percent gain in the Bankex index, which tracks the performance of 14 rivals including State Bank of India (SBIN), the nation’s largest.
Bhandari’s forecast for policy easing at the June 18 Reserve Bank of India meeting matches that of most economists. Governor Duvvuri Subbarao may cut the repurchase rate by 25 basis points to 7.75 percent to support economic growth, according to 14 of 18 economists in a Bloomberg survey.
The monetary authority lowered borrowing costs to 8 percent from 8.5 percent on April 17. It has also cut the amount lenders must set aside as reserves twice in 2012 to ease a cash squeeze in the economy.
Bhandari was hired as head of ING Vysya in August 2009. He had previously been chief executive officer of Centurion Bank of Punjab Ltd., which was acquired by HDFC Bank Ltd. in 2008.
Capital Requirements
ING Vysya, which raised 9.7 billion rupees through selling shares in June 2011 to large investors and a preferential allotment of equity to ING Groep, doesn’t plan to raise capital until March, Bhandari said this week. The lender had a capital adequacy ratio of 14 percent as of the end of March.
In 2002 ING Groep increased its stake in the bank to 44 percent from 20 percent. ING inherited 10 percent of Vysya Bank when it bought Belgium’s Bank Brussels Lambert SA in 1998. It increased its holding to 20 percent in November 1999.
Loans at Indian banks in total will climb 17 percent in the current financial year, the Reserve Bank said in April. That would be a slowdown from the 19.4 percent expansion in the twelve months to March 31.
Indian lenders may also have to raise as much as $50 billion to add to their retained earnings to meet Basel III capital requirements being set by the country’s central bank, with more than 75 percent of the funds being required in the two years starting April 1, 2016, Fitch Ratings said in May.
ING Vysya had 293 billion rupees ($5.3 billion) in outstanding loans as of March 31, after expanding credit by 22 percent in the 12 month period. That compared with 8.9 trillion rupees at State Bank of India, and 2.5 trillion rupees at No. 2- ranked ICICI Bank Ltd. (ICICIBC) The lender’s profit rose by 43 percent for the year to 4.56 billion rupees.
“There is nothing to bite us down the line in terms of bad loans,” said Bhandari.“We are looking at consistency and predictability in earnings.”
To contact the reporters on this story: George Smith Alexander in Mumbai at galexander11@bloomberg.net; Anto Antony in Mumbai at aantony1@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
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