Rise in non-performing assets only a blip for IndusInd Bank

Gross NPAs at 1.09% broke FY17 trend of sub-1% levels

IndusInd Bank met the Street’s expectations when it reported a 26 per cent growth in its June quarter (Q1) net profit at ~837 crore. Net interest income — interest earned minus interest expended — increased 31 per cent yearon-year (y-o-y) to ~1,774 crore.

The net interest margin was 4 per cent despite a marginal increase in the cost of funds in the reporting quarter. An increase in low-cost current and savings account deposits helped its margins.

However, the bank’s gross non-performing assets (NPAs) rose to 1.09 per cent in Q1. The figure was largely contained at less than a per cent in FY17, a primary reason why the bank commands as much premium as that of HDFC Bank in terms of valuations.

In absolute terms, gross NPAs rose 48 per cent to ~1,271.7 crore, while net NPAs rose 43 per cent to ~508.3 crore y-o-y. Provisioning for bad loans rose 34.5 per cent y-o-y to ~310 crore, but was down 28 per cent sequentially. An additional provisioning of about ~123 crore made in the March quarter towards an impending cement deal of JP Associates with UltraTech was reversed in Q1, in line with earlier guidance. But, instead of utilising this reversal and boosting net profit, it was used to create a floating provision of ~70 crore.

According to analysts, with a 41 per cent loan book exposure to large and midsize corporates, this buffer may be handy to keep asset quality under check.

Quarterly slippages in FY17 were largely contained in the range of ~250-280 crore. But in the March quarter, it rose to ~638 crore on account of a loan to JP Associates. Despite the closure of the deal, slippages in Q1 stood at ~608 crore. The Street will keep a close watch on the bank’s asset quality.

The bank’s stock ended flat on Tuesday at ~1,559.25 on the BSE, compared with its previous close of ~1,559.80.

Advances during Q1 rose 24 per cent to ~1,16,407 crore y-o-y. But, growth was stunted at 3 per cent sequentially. The overall lending climate is weak with no significant capacity expansions by India Inc. Here, IndusInd Bank’s performance offers comfort. But, maintaining a faster pace of loan growth is essential to keep NPA ratios under check.