The raising of its savings deposit rates after the deregulation in October has helped IndusInd Bank grow these accounts by 10 per cent. Further, while most of its peers are pruning their loan growth estimates due to the tough macroeconomic scenario, IndusInd remains optimistic. The management says it expects loan growth of 25 per cent over the next two years.
The bank is likely to improve its return ratios on equity and assets from the current levels to 20 per cent and 1.6 per cent in 2012-13, respectively. Analysts at Enam Securities believe the bank will post above-industry annual earnings growth of 30 per cent over the next two years.
The bank is trading at 2.4 times its estimated 2011-12 book value. While this is higher than its average one-year price to book ratio of two times, analysts expect the metric to be around 2.7 times for 2011-12. Most analysts are bullish on the stock and estimate a 25-30 per cent return over the next year. Though the bank is well capitalised and would not need capital infusion in the near term, it will have to trim promoters’ stake to below 10 per cent from 19.5 per cent currently, to comply with regulatory norms.
| CVs DRIVE LOAN GROWTH | |||
| Rs crore | FY11 | FY12E | FY13E |
| Net interest income | 1,377 | 1,703 | 2,161 |
| % chg | 55.3 | 23.7 | 26.9 |
| Total income | 4,303 | 6,216 | 7,668 |
| % chg | 32.0 | 44.4 | 23.4 |
| Net interest margin (%) | 3.4 | 3.4 | 3.5 |
| chg (in bps) | 60 | - | |
Strong CV portfolio
The bank is witnessing strong traction in its commercial vehicle (CV) segment. The segment (22 per cent of loan book) has grown by 36 per cent in the first half of this financial year over the previous one. Market share gains, coupled with good traction in CV sales (particularly light CVs), has fuelled this growth. The management expects growth in this segment to remain buoyant. The key drivers are rising rural incomes (due to government schemes), exit of public sector banks and smaller non-banking financial companies from CV financing, as well as the expected strong growth of 20-25 per cent in the light CV market. This is likely to offset further moderation in medium and heavy CV sales from the current growth rate of eight per cent.
Plans to expand lending to automobiles and other consumer finance businesses to 50 per cent by 2013-14 from 47 per cent at present should improve profitability. These loans fetch relatively higher yields.
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Higher savings growth
After deregulation of the savings account interest rate in October, the bank had raised its savings rate to six per cent. Since when, savings accounts opened each month have risen 10 per cent. The rise will hit net interest margins (NIMs) by three to four basis points in the near term. However, a higher current account/savings account (Casa) ratio, together with the recent increase in base rate, will support NIMs over the next two to three quarters, believe analysts. Also, it will help the bank move up its Casa ratio to 30 per cent by 2012-13 (28 per cent currently), believe analysts at Enam Securities. The bank also raised the interest rate on non-resident external deposits to 9.25 per cent, in a bid to attract more customers abroad. However, the real impact of this will be clear in a few months, as most banks have raised this rate, with the highest being 9.6 per cent.
Asset quality
A well-diversified industrial loan book, as well as low delinquencies in the vehicle book, have enabled the bank to maintain its asset quality. Notably, IndusInd Bank's exposure to troubled sectors such as power, micro finance institutions and telecom is relatively low, making it less vulnerable to asset quality shocks. It has less than two per cent exposure to infrastructure and power. Further, no single sector accounts for more than six per cent of its loan book. Analysts expect its gross non-performing assets to fall below one per cent by 2012-13, from 1.09 per cent in the September quarter.