IndusInd Bank’s (IIB) Q2FY20 NII has improved by 32% yoy to Rs2,910cr against Rs2,203cr in the corresponding quarter previous year. The net profit was in line with consensus estimates, which has improved by 50% yoy to Rs1,383cr against Rs920cr yoy. GNPA for Q2FY20 came at 2.19% against 2.15% qoq, which has increased by 4bps. NNPA for the quarter came at 1.12% as against 1.23% qoq, which has decreased by 11bps.
IIB’s reported performance was in-line at an operating level as higher non-interest income offset the miss in NII. The miss in NII was on account of lower loan growth of 21% yoy vs. the expectation of >25% yoy.
Consolidated margin expanded 26bps YoY and was attributable to the impact of the merger; this included a decline of 15bps YoY attributable to the standalone bank due to lower interest recognition. Yield in the corporate segment declined 4bps QoQ to 9.02% while yield in the retail segment increased 8bps QoQ. NII growth was lower than expected due to lower loan growth.
The bank increased its PCR by ~630bps qoq to ~50%, in-line with the management’s stated intent to reach a PCR of 60% by end-FY20.
The bank’s exposure to potentially stressed groups (3 groups – 1 from the media sector, 1 diversified and 1 HFC) reduced to 1.1% of its loan book and is expected to further reduce to 0.8% by end of October 2019 through repayments. This exposure is standard in the books of IIB.
Its overall loan growth was at 20.8% yoy for the quarter. In the retail segment, vehicle finance grew 20% YoY in 2QFY20 (versus 23% in 1QFY20) while other consumer loans grew 20% YoY in 2QFY20 (versus 21% YoY in 1QFY20). MFI loans growth was strong at 32% YoY.
NIMs for the quarter came at 4.1% as against 4.05% qoq.
Provisions made during the quarter is at Rs738cr as against Rs431cr qoq. Total provisions of Rs737cr included Rs355cr of accelerated provisions
The bank's total customers stood at 2.3 crore including Bharat Financial customers, whereas 2 million customers have been added during the quarter.
SMA 2 book for the quarter came at 58bps as against 17bps qoq.
Slippages for the quarter came at Rs1,102cr as against Rs725cr.
IIB additionally disclosed its exposure to an HFC-RE developer group taking the total stressed assets to 5.0% of loans up from 4.4% in 1QFY20 (Refer Figures 5 & 6). On a like-to-like basis, asset quality remained largely stable QoQ. GNPL ratio increased 4bps QoQ to 2.19%. IIB’s SMA-2 book increased to 0.58% of loans (0.17% in 1QFY20). Exposure to potentially stressed groups reduced to 1.1% of the loan book (down from 1.70% as of 1QFY20) and includes 0.15-0.20% overlap with SMA-2 loans.
Key takeaways from the earnings call
Loan growth: Loan growth was 14% yoy for the standalone bank and would be in the high teens excluding the sell downs and repayments in the corporate segment. Management expects loan growth in the 20s for FY20.
Corporate loans: Growth in mid and large corporate loans was 14% yoy on an average basis. However, this was lower on a period end basis due to sell downs of Rs3,000cr and substantial repayments on stressed exposure.
Non-vehicle retail loans: In the Business Banking Group (BBG) segment, IIB has witnessed slower growth of 11% yoy due to a lower acceptance rate on new loans on account of weaker balance sheet profile. The bank has remained cautious in the LAP segment over the past 2 years and therefore grew moderately at 6% yoy. Growth remained robust in the unsecured segment though.
Deposits: CASA growth was impacted by certain large SA withdrawals on the last day of the quarter as well as a reduction in an escrow account (meant for a resolution), which impacted CA.
Borrowings: Borrowings declined 10% qoq, primarily due to a prepayment of US$450mn on account of cost of deposits being lower than cost of borrowings. Benefits of this prepayment would be visible in the coming quarters.
Margins: Margin for the standalone bank stood at 3.69% (up 5bps qoq, down 15bps yoy). Management indicated that margins could further expand in coming quarters and eventually reach >4.25%. This would be driven by a falling interest rate environment, with decreasing cost of deposits, while yield would be supported by the bank’s large fixed rate loan book (~50%).
Capital adequacy: IIB remains well capitalised, with Tier-1 CAR of 14.3% (Basel III). Conversion of warrants going forward could add 100bps to capital ratios going forward.
Tax impact: Results for 2QFY20 include the impact of the lower effective tax rate and the charge on account of revision in DTA.
Total stressed assets increased to 5.0% of net loans as of 2QFY20 (4.4% as of 1QFY20). On a like-to-like basis, stressed assets were marginally lower; however, the addition of exposure to the HFC-RE developer group has caused the qoq increase.
The exposure to the HFC-RE developer group includes 0.27% of net loans to the financing business (down from 0.35% disclosed to the stock exchange) and 0.45% to the real estate businesses of the group. The real estate exposure is expected to reduce to 0.20% during 3QFY20, due to scheduled repayments and pre-payments. The exposure is strongly collateralised with no overdues currently.
Exposure to the 3 potentially stressed groups (all currently standard) has declined ~Rs1,120cr, primarily driven by repayments. Consolidated security cover stands at 1.6x.
IndusInd Bank Ltd is currently trading at Rs. 1,238.25, down by 71.25 points or 5.44% from its previous closing of Rs. 1,309.50 on the BSE.
The scrip opened at Rs. 1,311 and has touched a high and low of Rs. 1,320.50 and Rs. 1,232 respectively. So far 95,40,605 (NSE+BSE) shares were traded on the counter. The stock is currently trading above its 200 DMA.
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