Indian Bank (Q1 FY14)

India Infoline News Service | Mumbai |

Indian Bank’s loan book grew by 1.9% sequentially, lower than our estimate of 4%. The growth was mainly driven by Retail (11.2% qoq) and Overseas credit (10.3% qoq).

CMP Rs86, Target Rs93, Upside 8.1%
  • Indian Bank’s loan book grew by 1.9% sequentially, lower than our estimate of 4%. The growth was mainly driven by Retail (11.2% qoq) and Overseas credit (10.3% qoq). Growth in Corporate segment (-1.2% qoq/+8.6% yoy) was deliberately held back given the higher level of slippages recorded in this segment. Bank’s Priority Sector lending stands at 37.1% of its adjusted net bank credit. The yoy credit growth momentum was robust in MSME (30.7%), Direct Agriculture (29%) and Retail (26.4%) segment. We build in 18% advances CAGR over FY14-15. Deposits registered a robust growth of 5.4% qoq, versus our expectation of 3%. This can be attributable to 6.4% sequential growth in Term Deposits. Growth in CASA deposits (2.7% qoq/ 7.9% yoy) was relatively slow. Resultantly, CASA ratio declined by 70bps qoq to 26.9% in Q1 FY14.


  • NIM declined by 14bps qoq to 2.74% in Q1 FY14. This was led by a steep decrease in Yield on Advances (16bps qoq), increase in Cost of Funds (4bps qoq) and decline in C/D ratio by 2ppt sequentially. NIM is expected to remain under pressure in the near term given the pressure on asset quality, weak CASA mobilization and in anticipation of unfavourable re-pricing on deposits front.


  • Asset quality weakened slightly with GNPA (3.41% in Q1 FY14) and NNPA ratio (2.31% in Q1 FY14) rising by 8bps and 5bps qoq respectively. Delinquency ratio has come off to 2.4% in Q1 FY14 from 5% in Q3 FY13. Of the total slippages of Rs6.4bn, ~Rs3bn comprises of large accounts. This clearly indicates the stress on the Large Corporates. PCR improved marginally from 60.1% in Q4 FY13 to 61.3% in Q1 FY14. Outstanding restructured advances stood at 9.2% of total advances. During the quarter, bank restructured advances worth Rs6bn. We expect the pressure on the asset quality to persist given the weak operating environment.


  • Non-interest income rose significantly by 15% qoq/138% yoy driven by substantial trading gains. As a result, Cost/Income ratio improved dramatically from 64% in Q4 FY13 to 47.2% in Q1 FY14. Indian Bank is strongly capitalized with CAR and Tier I ratio of 13.1% and 10.8% respectively. Such high capital makes bank self-sufficient in executing its balance sheet expansion plans and complying with Basel III norms without seeking any capital infusion from government in the medium term.


  • Rising NPAs over past few quarters, lower-than-expected credit growth, weak CASA mobilization and margin compression has waned our confidence on the bank’s performance. Going ahead, RoA is likely to decline materially from current level on account of NIM correction, lower trading profits and high credit cost. We see Indian Bank delivering average 0.8% RoA over FY14‐15 calling for a lower valuation multiple amid increasingly challenging macro. Thereby, downgrade the stock to Market Performer with a 9-month target price of Rs93. 

Result table
(Rs mn)
Q3 FY13
Q2 FY13
% qoq
Q2 FY12
% yoy
Total Interest Income
35,465
34,104
4.0
32,240
10.0
Interest expended
(24,030)
(22,901)
4.9
(20,540)
17.0
Net Interest Income
11,434
11,203
2.1
11,700
(2.3)
Other income
2,402
3,634
(33.9)
2,812
(14.6)
Total Income
13,837
14,837
(6.7)
14,513
(4.7)
Operating expenses
(6,355)
(5,764)
10.3
(5,397)
17.8
Provisions
(4,116)
(2,022)
103.6
(2,361)
74.3
PBT
3,365
7,051
(52.3)
6,754
(50.2)
Tax
(59)
(2,096)
(97.2)
(2,018)
(97.1)
Reported PAT
3,306
4,955
(33.3)
5,259
(37.1)
EPS
30.8
46.2
(33.4)
48.9
(37.1)
 
Key  Ratios
Q3 FY13
Q2 FY13
chg qoq
Q2 FY12
chg yoy
NIM (%)
3.1
3.1
(0.1)
3.6
(0.5)
CASA (%)
28.3
29.0
(0.6)
30.2
(1.9)
C/D (x)
BSE 389.50 7.20 (1.88%)
NSE 389.55 6.45 (1.68%)

***Note: This is a NSE Chart

 

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