Yes Bank, one of the youngest private sector banks which still derives majority of its income from fees, was swift in hiking interest rates a week before inflation hit the double digit.
Would you look at acquiring banks to quicken the pace of expansion?
Yes, we have been presented with some interesting opportunities and there are two banks in our radar.
Which are these potential banks you are looking at?
All the good-looking banks are in the South. South and West are focus areas and so we are looking at the banks in South.
By when would you be going ahead with the proposal to buy them?
It may not happen in the short term and may take nine to 12 months.
You derive majority of your income from financial advisory and facilitating mergers and acquisitions (M&A). What is the outlook for this segment?
The M&A trend is very promising. We expect lot of mid-sized deals happening and deals of the size of the recent Ranbaxy-Daiichi Sankyo deal. There are transactions happening, but equity capital is the constraint. A lot of private equity deals are paying multiples, which equity capital markets are not paying.
How is the imminent slowdown in the economy going to affect your expansion?
Our organic growth mode is intact. We plan to take up our branch network to 117 by December and 125 by March 2009. Organic growth is a challenge in a tempered economy.
You have one of the highest PLR (prime lending rates) in the industry. You have also been aggressive in hiking deposit rates. How is that going to affect your profitability?
We hiked the rates within 24 hours of the previous inflation data being announced. We wanted to send the right signal to all our stakeholders and also signal the fact that interest rates are going to go up further. There may not be a major hit in the profitability and I anticipate only 8-10 per cent compression in the net interest margin.
What about growth in loans and deposits?
We expect loans to grow at 40-45 per cent (60 per cent last year) and deposits to grow at 50 per cent (70 per cent last year).
Where are inflation and interest rates headed?
We anticipated higher inflation for the next two three months and the worse is yet to come. Interest rates would go up further. I expect an immediate hike in the repo rates by another 0.25 per cent and a 0.50 per cent in cash reserve ratio.