Surge in provisions crimps IndusInd Q4 net growth to 21%

Doubling of provisions restricted private sector IndusInd Bank's March quarter net profit growth to 21 per cent at Rs 751.61 crore.
FY17 net profit grew 25 per cent to Rs 2,867.89 crore.
Even though it registered healthy growth on all key parameters, including core interest income and the fee incomes, a jump in provisions to Rs 430 crore from Rs 213.66 crore a year ago resulted in a dip in the profit growth.
Managing Director and Chief Executive Ramesh Sobti today said a Rs 122 crore provision due to a single cement account exposure and setting aside an additional Rs 123 crore on account of two asset sales to asset reconstruction companies of Rs 190 crore led to the surge in provisions.

He said the cement company exposure is a "bridge loan" which is standard and performing, but the Reserve Bank has asked it to provide more because the company's parent is showing stress and has been recognised as sub-standard.
Sobti informed that the cement asset is all set to be acquired by a city-based group and there will be a write-back of the provision in the near term once the deal is completed.

The gross non-performing assets ratio improved marginally to 0.93 per cent as of March 31, 2017 and Sobti said the overall credit costs have also come inside the guidance at 0.59 per cent for the year.

The bank's core net interest income grew 31 per cent to Rs 1,667.45 crore for the reporting quarter, while the non- interest income was up 33 per cent to Rs 1,211.30 crore.
The interest income growth was on the back of a 28 per cent loan growth during the fiscal and an expansion in the net interest margin to 4 per cent.
Sobti said the system's migration to the marginal cost of funds-based based lending rate (MCLR) has helped the bank create inroads into the corporate lending segment by catering to working capital requirements of clients.
This, along with a plateauing of lending in the note- ban hit segment of commercial vehicles, resulted in the overall share of corporate loans growing to 60 per cent.

The lender also announced a three-year roadmap to double the business on a slew of areas, including net profit, asset book, branch network and other factors.
Even as the market awaits progress on its acquisition talks with Bharat Financial (formerly SKS Microfinance), Sobti said the bank continues to be interested in the MFI segment which delivers "sustainable livelihoods" and has never caused any "grief" to lenders.
He said the three-year growth strategy does not focus on inorganic growth and added that in the MFI space, the lender is targeting to organically grow its book to Rs 10,000 crore from the present Rs 3,000 crore.

In the next three years, it is targeting to increase its profits from rural areas to 10 per cent from the present 3 per cent, he said.
The seven-pillar strategy also focuses on productivity and aims for a 2 percentage point improvement in the cost to income ratio from the present 45.68 per cent.
Digital will be a key component in this journey, he said, adding that for improvement of client experience, it has started a one year engagement with a consultancy firm.
Sobti said the bank is targeting the loan growth to sustain above the 25 per cent mark for each of the three years.

For acquisitions, the bank is focusing on domain expertise in a particular area and not asset size, he said, adding it has to be accretive from a return on equity and return on assets perspective from day one.
It has not factored for any equity sale during the three year-period and will focus on raising capital from the additional tier-I capital, from where it has raised Rs 2,000 crore in two tranches recently, he said.
The bank's overall exposure to the telecom sector -- where the RBI has raised flags of concern -- stands at Rs 2,500 crore and is mostly in working capital.

Sobti denied reports of the bank being interested in the general insurance space, saying it is not so much of an interesting proposition at present.
The bank scrip shed 0.63 per cent to close at Rs 1,422.75 a piece on the BSE, whose benchmark rose 0.06 per cent. The Bharat Financial Inclusion stock gained 1.92 per cent, largely as a result of IndusInd commentary.