IndusInd Bank kicked off the earnings seasons for the banking sector, with a good show, despite the persisting challenges within the sector. The bank’s net profit grew by 25 per cent during the June quarter, thanks to a healthy 23 per cent growth in loans. While the credit growth for the entire sector has slowed down to 9.3 per cent in the June quarter (from 9.5 per cent in the March quarter), IndusInd appears to be on a strong wicket.
The overall growth in loans has been led by both corporate and retail segment this time around. While the growth in the bank’s retail loans--of which more than a third is to the commercial vehicle (CV) segment—had been hit by the sharp decline in CV volumes over the last two years, the bank has been witnessing some uptick within the segment over the last two to three quarters. During the June quarter, loan growth in the CV segment inched up to 18 per cent, from 10 per cent during the March quarter. Better credit offtake within the CV space, has aided the 18 per cent growth in retail loans during the June quarter.
Steady growth in corporate loans that has led the bank’s performance through most of last fiscal, continues to deliver a healthy traction. Lending to this segment grew by 27 per cent during the June quarter.
A faster growth in corporate loans, has led to a shift in loan mix, skewing it in favour of the corporate segment. Accounting for 58 per cent of loans, lower yields in the corporate segment (around 4-5 percentage points lower than that in the retail segment), has led to 70 basis points fall in total yields on advances over the same period last year.
But a similar fall in costs of funds has helped the bank maintain its margins steady at 3.68 per cent. The bank has been able to grow its low cost current account and savings account (CASA) deposits at a healthy clip which has helped lower costs. During the June quarter CASA deposits grew by 26 per cent. After offering higher rates on savings deposits to woo customers, the bank trimmed its savings deposit rate by 0.5 percentage points for deposits upto Rs 1 lakh from May 2015 to 4 per cent. This will continue to aid margins in future as well.
IndusInd reduced its base rate—to which all lending rates are benchmarked—by 15 basis points to 10.85 per cent in June. Lowering rates on savings deposits and growing low cost deposit base will help the bank manage margins better as lending rates trend lower.
Containing slippages well
Growing concerns on the mounting bad loans for the banking sector has not affected IndusInd’s performance either. Despite the fast pace of growth in loans, the bank has been able to maintain stable asset quality by containing slippages. The total gross non-performing assets (GNPA) stood at 0.79 per cent of loans as of June 2015, down from 1.11 per cent in the previous year. Restructured assets as a proportion of loans are also at a comfortable 0.63 per cent.