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.