Money & Banking

IndusInd Bank starts fiscal on a positive note, but still early to gauge benefits of merging Bharat Fin

Radhika Merwin BL Research Bureau | Updated on July 12, 2019 Published on July 12, 2019

Strong growth in loans and sound asset quality are positives

The latest June quarter performance (standalone) of IndusInd Bank has been healthy, after a weak March quarter earnings impacted by the additional provisioning due to recognition of IL&FS exposure as NPA. Given that this is the first quarter which takes into account Bharat Financial Inclusion’s numbers — after the completion of the merger with IndusInd — the June quarter performance of the bank (consolidated) is not comparable to previous quarters.

Nonetheless, on standalone front, the bank’s performance is on a good footing. A 26 per cent y-o-y growth in loans, a 14 per cent growth in net interest income and an 18 per cent increase in net profit--it is a notable performance. While the growth in net interest income and profit is lower than its run rate of 20 per cent and above in the past (through FY18 fiscal and until the first half of FY19), the performance is sound given the persisting challenges in the sector.

Merger with Bharat Fin

Bharat Financial Inclusion (BFIL) was the largest microfinance institution (MFI) in terms of gross loan portfolio when the merger announcement was first made in October 2017. Synergies from the deal included increase in IndusInd’s market share in microfinance, boosting overall growth as well as higher yields and return ratios.

On a consolidated basis, loan growth stood at 28 per cent y-o-y in the June quarter. With the loan portfolio re-grouped, consumer finance division (that includes microfinance portfolio) constitutes 54 per cent of loans in the June quarter, up from 40-odd per cent in the past years. Microfinance itself contributes about 9 per cent to the merged entity’s loan book. In the June quarter, disbursements of BFIL saw a dip of 2 per cent y-o-y; the management explained that some of the slowdown was due to it turning cautious on overheated markets.

On the profitability front, margins and return ratios appear to have inched up post-merger. Net interest margin has moved up marginally to about 4 per cent in the June quarter, from 3.84 per cent in the March quarter (excluding IL&FS impact). Return on assets, too, has moved up to 2 per cent in the June quarter from 1.8 per cent in the March quarter.

It is, however, still early days to gauge the benefits of the merger. While the management is looking to leverage BFIL’s customer base for savings/deposits, how well it mobilises deposits from MFI customers is yet to be seen, given weak savings pattern within this segment.

A watch on the asset quality will also be important. In the June quarter, the gross NPAs have gone up marginally by about 6 per cent sequentially, forming 2.15 per cent of loans.

Published on July 12, 2019
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