IndusInd Bank: Gearing up for the next growth phase

Run-rate suggests bank on track to meet its aims of doubling operations by FY20

The performance of IndusInd Bank suggests some concerns on likely dip in non-interest income and sustainability of deposits garnered in December quarter were a bit stretched. March quarter (Q4) results re-iterated that the bank is in the right direction to achieve its three-year targets, which include doubling customer base to 20 million. Among others, it plans to expand loan book 25-30 per cent by FY20, while improving its current account-savings account share in deposits to 40 per cent. 

Net interest income at Rs 1,667 crore expanded 31 per cent year over year, while fee income grew a bit higher at 33 per cent year over year at Rs 1,211 crore. This is a bit ahead of expectation, though loan-loss provisions, which almost doubled in Q4, restricted net profit growth to 21 per cent. At Rs 752 crore, net profit was lower than Bloomberg consensus estimate of Rs 790 crore. The quarter saw provisioning rise to Rs 430 crore against Rs 214 crore a year ago, due to Rs 122-crore one-off. Therefore, gross non-performing asset (NPA) ratio and net NPA ratio, which marginally rose to 0.93 per cent and 0.39 per cent, respectively, in Q4, should not concern investors just yet. Analysts at ICICI Securities affirm that excluding this one-off provisioning, net profit would have been in line with estimates. 

However, it needs to be seen if the bank maintains balance between retail loans and corporate loans; medium-term aim of 50:50. The quarter witnessed IndusInd Bank slipping on this parameter, with loan book more in favour of corporate accounts, 60 per cent share. The other point is corporate advances at Rs 67,552 crore growing faster at 30 per cent as against 25 per cent growth posted by consumer finance loans or retail loans. Lag in retail loans is largely due to a slowdown in disbursal towards commercial vehicles (CVs) on account of change in emission norms. CVs account for about half of vehicle loans, which in turn contribute to about 70 per cent of retail loans. IndusInd Bank expects this portfolio to normalise in one-two quarters. On the other hand, an increase in disbursement of working capital loans helped the bank post brisk growth in corporate loan accounts, much ahead of industry growth. 

 

Analysts term the bank's Q4 performance as satisfying. Lalitabh Shrivastawa, associate vice-president, research, Sharekhan, says that with its strong management and performance delivery, IndusInd Bank should be attractive for long-term investors. However, investors could consider buying the stock on dips, given the gains of 28 per cent this year.