Money & Banking

To extend gains, IndusInd Bankbets on Bharat Fin acquisition

Bloomberg July 24 | Updated on July 24, 2019

IndusInd Bank, India’s best-performing lender in the past decade, is counting on its acquisition of a microfinance firm to help it improve profitability, while shrugging off risks from the country’s NBFC crisis.

IndusInd’s purchase of Bharat Financial Inclusion will help it to move the needle on profitability parameters, including return on assets and lending margins, said CEO Romesh Sobti. Acquiring the nation’s largest micro financier gives the bank presence in more than 1.15 lakh Indian villages that will increase its cross-sell, lending, and low-cost deposit mobilisation efforts, said Sobti.

Mumbai-based IndusInd, the stock price of which has risen 1,500 per cent since Sobti became CEO in 2008, lost some of its sheen after analysts, including those at Credit Suisse and UBS Group, flagged the lender’s exposure to beleaguered NBFCs that include Dewan Housing Finance. However, higher capital buffers and lower bad loans helped the bank sidestep the fate of rival YES Bank, which had lent to the non-banks, and saw its market capitalisation halve.

IndusInd’s exposures are way lower than what is projected in those reports and is backed by adequate collateral, said Sobti. “We are not expecting any spike in bad loans and are currently focusing on using the doorway offered to rural India through Bharat Financial.” IndusInd has been more selective in lending to non-banking financial companies of late. The bank’s net bad loan ratio stands at about 1.2 per cent, compared with 2.9 per cent at YES Bank. IndusInd’s return on assets rose to 2.1 per cent in June from 1.9 per cent in the year-ago period, filings show.

Still, there’s another risk looming for the bank, according to Morgan Stanley analysts – Sobti’s retirement in March. The CEO, who had quit ABN Amro Bank NV’s local unit to take the top job at IndusInd in February 2008, is credited with the turnaround that led to the surge in its shares, making it the best performer on the 10-member Bankex Index. The index climbed 200 per cent in the same period.

“There is no need for concern as the board has been applying its mind to this over the last four years,” said Sobti. “By the end of 2019, my successor will be in place, and there won’t be any disruption.”

Published on July 24, 2019

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