Indian Bank’s loan book grew by 4.2% sequentially, almost in line with our expectation of 4%. The growth was mainly driven by overseas credit (11.4% qoq), Agriculture (5.5% qoq), and Retail (4.6% qoq) segments. Corporate segment witnessed muted growth of about 2.8% qoq/8.9% yoy. Bank has achieved its PSL target, by lending 39.9% of its adjusted net bank credit to priority sectors (as mandated). 9M FY13 credit growth stood lower at 11.8% due to shedding of short term unsecured loans to the tune of Rs45bn. Deposits grew by 3% qoq, versus our expectation of 2.5%. The healthy growth was driven by 3.9% sequential growth in Term Deposits. CASA deposits were almost flat resulting in 63bps qoq decline in CASA ratio to 28.3% in Q3 FY13. Bulk deposits continued to decline from 13% earlier to 8% currently. Management has guided a balance sheet growth of 15-16% in FY13.
NIM declined by 5bps qoq to 3.07% in Q3 FY13. This was led by decrease in YoA (calculated) and increase in CoF (calculated). NIM is expected to remain under pressure in the near term on account of base rate cut by 30bps (effective from Feb’2013) without an accompanying deposit rate cut.
Asset quality deteriorated significantly with GNPA ratio increasing from 2.1% in Q2 FY13 to 3.2% in Q3 FY13. Delinquency ratio almost doubled from 3.1% in Q2 FY13 to 5.8% in Q3 FY13. Slippages largely pertained to Export Oriented Units, EPC, Textile and Heavy industries. Bank has guided an improvement in asset quality as ~50% of the delinquencies in Q3 FY13 are expected to be upgraded in Q4 FY13. Less-than-commensurate provision resulted in an increase in NNPA ratio by 84bps qoq to 2.2% in Q3 FY13. PCR declined significantly from 71% in Q2 FY13 to 61% in Q3 FY13. During the quarter, bank restructured advances worth Rs4.5bn. Bank made additional provision of 0.75% on the existing restructured book (as mandated by RBI). Provisions are expected to remain elevated with the implementation of Mahapatra Committee recommendation, to increase the provision on standard restructured advances to 3.75% (current 2.75%) by Mar’2014 and to further 5% by Mar’2015.
Non-interest income de-grew by 33.9% qoq/14.6% yoy. Weak growth in NII, significant de-growth in non-interest income and higher operating expenses contributed to sharp jump in Cost/Income ratio from 38.9% in Q2 FY13 to 45.9% in Q3 FY13. Management expects growth in other income to revive in Q4 FY13.
Indian Bank is strongly capitalized with CAR and Tier I ratio of 14.5% and 12.2% (including 9M FY13 profits) respectively. Such high capital makes bank self-sufficient in meeting its balance sheet expansion plans without seeking any capital infusion from government in the medium term.
Despite deterioration in asset quality, we remain constructive on Indian Bank due to its stronger capitalization and undemanding valuation. Retain BUY rating on the stock with a 9-month target price of Rs223.
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q2 FY12||% yoy|
|Total Interest Income||35,465||34,104||4.0||32,240||10.0|
|Net Interest Income||11,434||11,203||2.1||11,700||(2.3)|
|Key Ratios||Q3 FY13||Q2 FY13||chg qoq||Q2 FY12||chg yoy|
|Non-interest income (%)||17.4||24.5||(7.1)||19.4||(2.0)|
Interest exp (%)
|Cost to Income (%)||45.9||38.9||7.1||37.2||8.7|
|Gross NPA (%)||3.2||2.1||1.1||1.4||1.8|
|Net NPA (%)||2.2||1.3||0.8||0.8||1.4|
|Y/e 31 Mar (Rs m)||FY12||FY13E||FY14E|