IndusInd Bank's Q4 a mixed bag: NII up 45%; pre-tax profit falls 22%

Net interest income up 45% YoY; pre-tax profit falls 22%

The March 2020 quarter (Q4) standalone performance of IndusInd Bank, reported on Monday after market hours, was a mixed bag, with the top line beating the Street’s expectations and the bottom line falling way short of estimates.

The bank’s pre-tax profit declined 22 per cent year-on-year (YoY) and 77 per cent quarter-on-quarter (QoQ) to Rs 395.9 crore, and was lower than the Bloomberg Consensus estimate of Rs 403 crore. Despite lower tax expenses restricting the fall in net profit to 16 per cent YoY (Rs 301.8 crore), profit fell significantly short of the Consensus estimate of Rs 412 crore.

Investors should note the YoY figures are not comparable because of the merger of Bharat Financial Inclusion with IndusInd Bank.

The provisioning for IL&FS, two fraud accounts (each from the housing finance and travel sectors) and telecom loan accounts, and the impact of Covid-19 pandemic led to provisions surging to Rs 2,440 crore, from Rs 1,043 crore in the December 2019 quarter (Q3) and Rs 1,561 crore in the year-ago period. The bank provided Rs 283 crore (including floating provisioning of Rs 260 crore) for the coronavirus impact. IndusInd’s credit cost, which is bad loan provisioning as a percentage of average loan book, shot up to 86 basis points in Q4, from 28 basis points in Q3. With this, IndusInd’s provision coverage ratio stood at 63 per cent as of March 20, up from 53 per cent as of December 2019.

The bank’s gross non-performing assets (NPAs) as a percentage of loan book stood at 2.45 per cent as of March 2020, an increase of 27 basis point sequentially. Write-offs of Rs 1,490 crore confined the overall gross NPA pressure in Q4. Net NPA stood at 0.91 per cent, down 30 basis points from 1.21 per cent in Q4FY19.

 

 

In the top line, net interest income, or NII, rose 5 per cent sequentially and 45 per cent YoY to Rs  3,231 crore. Net interest margin, too, improved to 4.25 per cent in Q4, from 4.15 per cent and 3.59 per cent a year-ago quarter. Higher growth in the high-yield retail loan portfolio and refinance of liabilities supported the bank’s top-line growth despite poor growth in loan advances.

According to an analyst, refinancing came at attractive pricing, which was also lower than deposit pricing. The bank’s deposits, however, declined 7 per cent in Q4, mainly because of the withdrawal by state government accounts. Though the management is confident of recovering its deposit franchise in the next couple of quarters, analysts are sceptical.

To see structural recovery on the deposit front, the bank would need more time, say analysts.

“In March, our collections were upward of 95 per cent in all our portfolios, and in April, we are educating customers to pay instalments and we are seeing good results as they understand they have to pay extra interest,” said Sumant Kathpalia, MD & CEO, IndusInd Bank.

Going ahead, the management sees at most an 80-bps increase in the credit cost in FY21 because of Covid-19 which, analysts believe, could have an upside risk.

Analysts are sceptical of the bank’s telecom/business banking (6 per cent of the loan book) and the vehicle portfolio (28 per cent of the loan book). Also, since the impact of Covid-19 is yet to fully reflect, eyes will be on the June quarter as to how the bank’s asset quality and profitability pans out. “While Q4 was better and deposits coming back was positive, we do see profitability pressure in the ensuing quarters with moderation in growth, weaker fee lines, and elevated credit costs (high share of ‘BBB and below’ book and the impact of the lockdown on CV/MFI loans),” says Mona Khetan, analyst at Dolat Capital.

For now, the management has indicated that it is focussing more on protecting balance sheet, rather than growth.

The lender reported the capital adequacy ratio (CAR) of 15.04 per cent at the end of the March quarter, compared to 14.16 per cent a year ago. Tier 1 CAR was at 14.57 per cent as of March 31, 2020, compared to 13.70 per cent as of March 31, 2019.

While on a consolidated basis, the Bank’s net profit was down 12 per cent YoY and 76 per cent sequentially to Rs 315.2 core.

The bank has not declared any dividend out on profit for FY20, according to the RBI directive.

On the proposal to increase promoters’ stake, the management said it had not received any communication from the Reserve Bank of India.