Home, gold loans make Indian lender top Asian bank stock
mumbai — Indian Bank, a centuryold state-owned lender based in the country’s south, has emerged as Asia’s top-performing bank stock in the past year, driven by a focus on consumer loans that are less likely to sour than corporate advances.
The Chennai-based firm is aiming to boost retail lending, which includes mortgages and loans underpinned by gold as collateral, to account for 60 per cent of its loan book over the next two years, up from 52 per cent at the end of December, according to chief executive officer Mahesh Kumar Jain.
“We are positioning ourselves as a strong retail and mid-segment bank as growth in that segment is consistent,” Jain said in an interview last month.
“We are not expanding our book in corporate credit” except to companies where the bank sees “visible cash flows,” he said.
Investors have been favoring consumer lenders over their commercial-focused peers amid a surge in bad loans from corporate debtors that has given India the highest stressed-loan ratio among Asia’s major economies. Shares of government banks with large corporate books like Syndicate Bank and Andhra Bank have underperformed their peers in the past 12 months amid concerns over corporate repayments.
Indian Bank, meanwhile, has more than tripled in the year to February 6, the most among 198 Asian lenders valued at more than $1 billion, data compiled by Bloomberg show. Manappuram Finance and Muthoot Finance are among other consumer-focused lenders that have rallied in that time.
We are positioning ourselves as a strong retail and mid-segment bank as growth in that segment is consistent
Mahesh Kumar Jain, CEO of Indian Bank
All of the nine analysts tracking Indian Bank recommend investors buy or hold the stock, giving it a consensus rating of 4.33 per cent out of five, the highest among India’s state-run banks, according to ratings compiled by Bloomberg.
There are signs that the stock is due for a breather: Analysts have a consensus 12-month target price of 287.11 rupees on the stock — 1.7 per cent below its close on Monday — and its price-to-book valuation had jumped to 0.88 times, close to the most expensive level in three years, data compiled by Bloomberg show. Even at that price, Indian Bank’s equity is still trading at a discount to its net assets.
The stock lost 0.6 per cent to 290.45 rupees as of 10:04am in Mumbai on Tuesday.
“Indian Bank is considered as the best bet among public sector banks right now due to their strong consumer-assets book and falling concerns on asset quality,” said Praveen I, a Chennai-based analyst at Cholamandalam Securities Ltd.
“If the retail loans move to 60 per cent of the total, that would be highest among top lenders in the country. Even after the rally, it is a good buy at current valuations.” — Bloomberg