Money & Banking

IndusInd Bank: Starts year on a positive note

Radhika Merwin BL Research Bureau | Updated on July 10, 2018

Core performance healthy despite slight dip in margins

A loan growth above industry average, healthy growth in fee income and steady asset quality have helped private lender IndusInd Bank kick off the earnings season on an upbeat note.

The concern over bad loan divergence that had weighed on the bank in the March quarter appears to have abated for now.

The bank’s gross non-performing assets stood at a comfortable 1.15 per cent of loans in the June 2018 quarter. But for the slight fall in its net interest margin, IndusInd’s core performance seems to have checked all the right boxes.

CV financing

For IndusInd, which has a well-diversified loan portfolio, growth has not been an issue. After clocking a robust 28 per cent growth in loans in FY18, the bank began the current fiscal too on a strong footing.

The 29 per cent Y-o-Y growth in credit in the June quarter has been driven by healthy traction in both corporate and retail loans. What has particularly aided the bank’s core performance over the past three to four quarters has been the steady up-tick in commercial vehicle financing that took a knock in FY17.

After clocking a modest 11 per cent growth in FY17, CV loans reported a 27 per cent Y-o-Y growth in FY18.

The growth has further moved up to 33 per cent in the latest June quarter. Broad macro indicators only suggest steady traction within the CV space, going ahead.

Other segments within retail are in any case firing on all cylinders. Corporate loans, too, have seen strong growth, aiding overall loan growth.

In the June quarter, IndusInd witnessed a marginal dip in its net interest margin. One reason could be the strong growth in corporate loans (vis-à-vis retail loans), which carry a relatively lower yield.

Two, IndusInd’s relatively higher proportion of fixed rate loans (70 per cent) that aided margins in a falling rate scenario, could weigh somewhat on margins as deposit rates continue to rise.

That said, the bank’s healthy share of low-cost CASA deposits and strong loan growth should keep margins within a narrow band.

Over the past year, steep bad loan divergences reported by banks – both public and private sector banks – have been a cause for worry.

In the previous March quarter too, IndusInd had reported ₹1,350 crore of bad loan divergences pertaining to FY17.

The RBI’s February circular on stressed accounts that has done away with all the old restructuring schemes has somewhat narrowed the possibility of sharp divergences, going ahead.

Nonetheless, the divergence report for FY18 will be a key factor to watch for to assess the big picture on asset quality. IndusInd’s GNPA ratio has been around the 1 per cent mark over the past four to five years. A notable spike could unsettle investors.

Published on July 10, 2018

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