ING Vysya Bank (Q1 FY14)

India Infoline News Service | Mumbai |

IVB’s asset quality deteriorated slightly after being stable so far. Slippages were high amounting Rs1.4bn driven largely by delinquencies in emerging corporate and relatively small large corporate customers.

CMP Rs578, Target Rs674, Upside 16.6%
 
  • In a tough operating environment, ING Vysya Bank’s (IVB) customer assets growth was healthy at 18% yoy driven by strong growth in segments of Agri (55% yoy) and Business Banking (24% yoy) and in retail products of personal loans (36% yoy), commercial & auto loans (40% yoy), gold loans (114% yoy) and LAP. Growth in wholesale banking segment was muted at 12% yoy with some stress seen in emerging corporate and relatively smaller large corporate. Bank targets to grow assets marginally ahead of the system in FY14 with focus on quality. 


  • Deposits were largely flattish on sequential basis on account of 8% qoq decline in both current and savings balances. Consequently, the CASA ratio dipped by 230bps qoq to 30%, hitting the lowest level in many quarters. It was slightly surprising that despite substantial new salary account additions, New-to-Bank CASA mobilization was weak at Rs2.7bn (lower 38% qoq). Retail bank average CASA was stable sequentially at Rs88bn.


  • NIM decline of 15bps qoq was in-line with expectations on the back of adverse loan mix (higher share of lower-yielding PSL advances). Cost of deposits inched-up by 10bps qoq due to lower contribution of CASA deposits. The recent capital raise of Rs18.4bn (issued 30mn shares @ Rs612) should help improve margin over the next two quarters. For the full-year, we estimate NIM at similar to FY13 level of 3.5%. 


  • Fee income posted an improved growth of 22% yoy (was just 3% yoy in Q4 FY13) driven by robust traction in Wealth Management/Advisory and Forex fees. Investment related income also stood significantly higher on sequential basis due to higher trading gains. During the quarter, bank recovered Rs200-250mn from an earlier written-off account. Opex growth witnessed a slight uptick as the bank has resumed calibrated branch expansion since H2 FY13. C/I ratio adjusted for one-off recovery stood at near 53% marking third consecutive quarter of operational improvement. In our view, further improvement from here would be limited in the current year. 


  • IVB’s asset quality deteriorated slightly after being stable so far. Slippages were high amounting Rs1.4bn driven largely by delinquencies in emerging corporate and relatively small large corporate customers. Asset quality in SME and Retail book remains strong. Restructuring was negligible during the quarter. Bank prudentially wrote-off loans worth Rs1.05bn by fully providing on them thus containing the sequential increase in Gross NPA. Provisioning was substantially higher than expected at Rs680mn as the bank provided conservatively towards the slippages. PCR stands at 90% providing comfort in a deteriorating environment.


  • Post capital raising of Rs18.4bn, bank’s Tier-1 capital stands increased by ~400bps. Robust capitalization represents high cushion against asset quality shocks and ability to grow aggressively if credit conditions improve. Bank sustained RoA at 1.3% albeit supported by higher treasury income and one-off recovery. We believe that incremental improvement in RoA would be difficult in a scenario of rising credit cost. 


  • We retain constructive stance on IVB in view of successful capital raise and reasonable valuation (1.4x FY15 P/adj.BV). IVB remains one of our preferred mid-cap banking pick.

Result table
(Rs mn)
Q1 FY14
Q4 FY13
% qoq
Q1 FY13
% yoy
Total Interest Income
13,086
12,537
4.4
11,714
11.7
Interest expended
(8,832)
(8,301)
6.4
(8,281)
6.6
Net Interest Income
4,254
4,237
0.4
3,433
23.9
Other income
2,445
2,004
22.0
1,710
43.0
Total Income
6,699
6,241
7.3
5,142
30.3
Operating expenses
(3,430)
(3,398)
0.9
(2,967)
15.6
Provisions
(681)
(336)
102.8
(267)
155.3
PBT
2,588
2,507
3.2
1,908
35.6
Tax
(837)
(804)
4.1
(607)
37.8
Reported PAT
1,751
1,703
2.8
1,301
34.6
EPS
44.7
44.0
1.6
34.6
29.0

 
Key  Ratios
Q1 FY14
Q4 FY13
chg qoq
Q1 FY13
chg yoy
NIM (%)
3.6
3.7
(0.2)
3.3
0.3
Yield on Advances (%)
11.7
11.9
(0.2)

***Note: This is a BSE Chart

 

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