ING Vysya Bank (Q2 FY14)

India Infoline News Service | Mumbai |

ING Vysya Bank’s (IVB) customer assets grew by 14% yoy driven by strong growth in segments of Agri (61% yoy) and Business Banking (26% yoy) and in retail products of personal loans (34% yoy), gold loans (56% yoy) and LAP.

CMP Rs578, Target Rs712, Upside 23.1%
  • ING Vysya Bank’s (IVB) customer assets grew by 14% yoy driven by strong growth in segments of Agri (61% yoy) and Business Banking (26% yoy) and in retail products of personal loans (34% yoy), gold loans (56% yoy) and LAP. On sequential basis, there was robust expansion in SME (8% qoq, share rose to 36%) and Agri (20% qoq, share rose to 8.4%) assets. Growth in wholesale banking segment was muted at 2% yoy (sequentially contracted by 13%, share declined to 36%) impacted by repayment of a large loan worth Rs21.5bn from a Telecom client and bank’s cautious growth approach in the emerging corporate space. Within mortgages, shift towards LAP accelerated with its contribution in disbursements jumping to 62% during H1 FY14. Bank targets to grow its customer assets marginally ahead of the system with focus on quality. 
  • In-line with customer assets, total deposits also declined by 2% on qoq basis and represented a modest growth of 11% yoy. The key positive was revival in CASA mobilization with the ratio improving 230bps to 32.5%. Savings balance increased by strong 8.5% qoq and represented a much improved 11% yoy growth (highest in the past nine quarters). Robust traction in corporate salary account addition continued with the bank adding 78000 new accounts during the quarter. New-to-Bank CASA addition was better than in Q1 FY14 at Rs3bn. Term deposits de-grew by 5.5% qoq, mainly driven by run-off in bulk deposits and CDs due to high prevailing rate. 


  • NIM contracted by less-than-expected 10bps qoq to 3.46% on the back of 12bps increase in cost of deposits. Funding cost increased due to spike in wholesale rates (40% exposure for the bank) and marginal rate hike on term deposits of <1-year maturity. Lending yield was flat and reflected only partial transmission of the 20bps base rate hike announced in August. NIM is expected to recover in H2 FY14 on account of 1) utilization of equity proceeds (raised Rs18.4bn in June 2013) for funding asset growth 2) loan mix shift towards better-yielding SME/Retail loans and 3) full transmission of the base rate hike that will re-price large portion of corporate/SME loans. For the full-year, we estimate NIM to be 5-10bps higher than 3.52% of FY13. A more benign liquidity scenario in FY15 would push bank’s margin to a multi-year high. 


  • Core fee income growth though healthy at 17% yoy was largely driven by 63% jump in Forex & Derivatives income. Weakness in fees streams related to liability and trade finance & CMS persisted. Given the challenging rate environment, bank incurred a treasury loss of Rs46mn as compared to material gain of Rs273mn in previous quarter. Opex growth moderated to 12.5% yoy, notwithstanding addition of 22 branches in the past 12 months, aided by sustained focus on improving efficiency. The core cost/income ratio (excluding treasury income and one-off recoveries) stood at 55.6% as compared to 58.2% in the corresponding quarter last year. In our view, the reported cost/income ratio is likely to improve to 52% in FY15 supported by significant NIM expansion and higher non-interest income.


  • Asset quality performance was robust with Gross NPLs dipping both in absolute terms and as a ratio to advances. Slippages at Rs0.86mn (annualized delinquency at 1%) were lower than Rs1.4bn (annualized delinquency at 1.7%) in Q1 FY14. During the quarter, the bank upgraded one account of Rs700-800mn to standard on implementation of the CDR package. This led to release of provisions of about Rs300mn (has provided conservatively in Q1 FY14) and therefore overall credit cost was negligible. PCR was unchanged at 89%. The bank provided for the entire ~Rs180mn MTM depreciation on AFS/HFT investments during the quarter therefore not choosing to amortize the same. Apart from the emerging corporate segment (~35% of total corporate book), asset quality of the bank remains solid.


  • Bank delivered annualized RoA of 1.3% for the quarter despite multiple challenges. RoE was depressed by the substantial capital raise of Rs18.4bn in June 2013.


  • On the back of stronger-than-expected performance, we upgrade earnings estimates for FY14 by 9% and of FY15 by 2%. We now expect a gradually improving RoA delivery over FY13-15 despite factoring some asset quality challenges. Improvement in profitability would be underpinned by sustained decline in cost/income ratio. We estimate bank to deliver strong 22% earnings CAGR over FY13-15. Current valuation at just above six-year mean does not fully discount accomplished and potential improvement in the profitability metric. Retain BUY and upgrade 9-month target price to Rs712.   

Result table
(Rs mn)
Q2 FY14
Q1 FY14
% qoq
Q2 FY13
% yoy
Total Interest Income
13,173
13,086
0.7
11,976
10.0
Interest expended
(8,770)
(8,832)
(0.7)
(8,288)
5.8
Net Interest Income
4,403
4,254
3.5
3,688
19.4
Other income
1,847
2,445
(24.5)
1,689
9.3
Total Income
6,250
6,699
(6.7)
5,377
16.2
Operating expenses
(3,487)
(3,430)
1.7
(3,100)
12.5
Provisions
(181)
(681)
(73.5)
(64)
183.2
PBT
2,583
2,588
(0.2)
2,213
16.7
Tax
(820)
(837)
(2.0)
(710)
15.4
Reported PAT
1,763
1,751
0.7
1,502
17.4
EPS
37.6
44.7
(15.8)
39.7
(5.2)
 
Key  Ratios
Q2 FY14
Q1 FY14
chg qoq
Q2 FY13
chg yoy
NIM (%)
3.5
3.6
(0.1)
3.5
0.0

***Note: This is a BSE Chart

 

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