In­dusInd Bank: NPA ra­tios sta­bilise, prof­itabil­ity re­mains strong

Fo­cus shifts to how con­sol­i­da­tion with Bharat Fi­nan­cial would play out


Af­ter throw­ing up some signs of as­set qual­ity pres­sures in the June quar­ter, things are sta­bil­is­ing yet again for In­dusInd Bank.

The Septem­ber quar­ter (Q2) re­sults were largely in line with ex­pec­ta­tions, with net in­ter­est in­come (NII) at ~1,821 crore and net profit at ~880 crore. The bank had re­ported a 25 per cent year-on-year (y-o-y) growth on each of th­ese two pa­ram­e­ters. Net in­ter­est mar­gin (NIM), the prof­itabil­ity in­di­ca­tor, was logged at four per cent for the fifth straight quar­ter.

An­a­lysts be­lieve that main­tain­ing this level is fea­si­ble, given its pru­dent fundrais­ing ap­proach, which is rais­ing long-term cap­i­tal at fixed in­ter­est rate.

Over­all busi­ness growth was also strong in Q2, with ad­vances at ~1,23,181 crore, grow­ing 24 per cent y-o-y. This was am­ply sup­ported by re­tail and cor­po­rate loan growth of 22 per cent and 26 per cent, re­spec­tively.

The cor­po­rate loan book ac­counts for 60 per cent of the bank’s over­all loan port­fo­lio. The li­a­bil­i­ties side of the busi­ness (de­posits) also re­ported a 26 per cent y-o-y growth at ~1,41,441 crore in Q2, helped by an in­crease in low- cost Casa (cur­rent ac­count sav­ings ac­count) de­posits, which were up 46 per cent y-o-y.

De­spite an unattrac­tive sav­ings rate regime seen across banks, In­dusInd Bank’s sav­ings ac­count de­posits have al­most dou­bled to ~40,157 crore over the year-ago quar­ter, help­ing the share of Casa to over­all de­posits ex­ceed the three­year planned thresh­old of 40 per cent. It stood at 42 per cent in Q2. But, in the light of the cur­rent in­ter­est rate sce­nario, it needs to be seen if Q2’s show on the Casa front is sus­tain­able.

“We need to test the stick­i­ness of Casa, par­tic­u­larly sav­ings ac­count growth. While the man­age­ment may be able to keep up its 40 per cent Casa tar­get, any growth beyond this level may be dif­fi­cult to main­tain,” said Asu­tosh Ku­mar Mishra of Re­liance Se­cu­ri­ties.

Av­er­age in­dus­try Casa ra­tio is 40-44 per cent.

The Street would also keep a close tab on the bank’s as­set qual­ity. That the gross non-per­form­ing as­sets (NPA) ra­tio and net NPA ra­tio have re­mained sta­ble at 1.08 per cent and 0.44 per cent, re­spec­tively, in Q2 is a pos­i­tive. But, when com­pared to the year-ago level of 0.9 per cent and 0.37 per cent, re­spec­tively, mon­i­tor­ing th­ese num­bers seems log­i­cal.

Six loan ac­counts were re­ferred to In­sol­vency and Bankruptcy Code pro­ceed­ings in Q2, which re­quired ad­di­tional pro­vi­sion­ing of ~36 crore.

On the whole, An­a­lysts gave a thumbs up to In­dusInd Bank’s Q2 per­for­mance and be­lieve that it jus­ti­fies the 4.8 times FY18 price-to-book val­u­a­tions. The com­ing days, though, would be crit­i­cal to eval­u­ate the im­pact of Bharat Fi­nan­cial In­clu­sion’s merger with the bank. Un­til de­tails emerge, they pre­fer to be on the side­lines.

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