Mumbai: Private lender Dhanlaxmi Bank is eyeing forays into new segments to boost profitability by focussing on non-interest income, at a time when surging interest rates make it difficult to safeguard margins, its chief financial officer told Reuters.
The lender is looking to enter into retail gold sales segment and prepaid forex cards — used instead of cash for purchases in foreign exchange — in FY12 to boost profitability.
For the quarter-ended March, its non-interest income rose 44.3% to Rs 46.10 crore due to thrust on fee-based business, Bipin Kabra said, adding it will continue to focus on this segment. Its total income stood at Rs 340 crore.
“We also want to get into portfolio management but that will take some time... one year, at least. These initiatives, which we are taking, are to build our non-interest income as net interest income is likely to grow at a relatively smaller pace.”
Kerala-based Dhanlaxmi Bank, which has about 145 branches in the southern state, aims to become one of the leading players in the gold sales.
“Gold has a good amount of growth potential. More and more demand is flowing into it as gold is considered to be a safe haven,” Kabra said in an interview on Tuesday.
Gold prices have risen 9% so far this year compared with a 14% drop in the 30-share BSE benchmark index in the period, making it an attractive investment.
Currently HDFC Bank is the leader in gold sales in India followed by state-run banks such as State Bank of India and Union Bank .
Riding on the boom in gold, several financial institutions including Reliance Capital and M&M Financial Services are ramping up presence in this segment, competing with the likes of Muthoot Finance and Manappuram General Finance & Leasing .
The lender, which recently raised about Rs 300 crore through a share sale to private equity funds, is looking to raise another Rs 700 crore in the next 6-9 months and may opt for qualified institutional placement of shares, Kabra said.
Dhanlaxmi, which has a total business of about Rs 22,000 crore, will wait for interest rates to soften a bit before going in for bond issues to raise funds, Kabra said.
“It’s tough to maintain net interest margins (NIM) with rising rates,” he added. At end-March, its NIM was 3 percent.
The bank, which expects to maintain credit growth of 70%, expects lending to the small and medium enterprises (SME) segment to rise two-and-a-half times to Rs 4,500 crore in the current financial year, Kabra said.
Banks generally command a 100 basis points higher interest rate while lending to SMEs as compared to corporates or retail due to higher risk perception.
Unlike other lenders, Dhanlaxmi Bank chooses to increase its client base in existing branches rather than expand its network, though it will look at overseas branch expansions in 2012-13, Kabra said.
Its low-cost current account-savings accounts (CASA) ratio stands at 21% of total deposits, but it will be “challenging” to maintain that, he said.
“A short-term deposit tends to offer better rates so I’d go for it. When interest rates move up and short tenor goes up you’d see a flight of money from CASA to term deposits.”
India’s top lenders such as SBI, ICICI and HDFC Bank have CASA ratio of more than 40 percent.
At 10.24 a.m. , shares of Dhanlaxmi Bank, valued by the market at Rs 970 crore, was down 0. 17% Rs 114. 2 5 rupees in a flat Mumbai market. It has lost about a tenth of its value so far this year.