ING Vysya Bank’s (IVB) customer assets growth was healthy at 17% yoy for FY13 driven by robust growth in key segments of Agri (73% yoy) and Business Banking (26% yoy) and in key retail products of personal loans (71% yoy), commercial & auto loans (38% yoy), gold loans and LAP. Growth in wholesale banking segment was muted at 7% yoy impacted by repayments from two large telecom companies. About 87% of the expansion in the customer assets during Q4 FY13 was driven by PSL investments and therefore advances were nearly flat on sequential basis and represented a modest growth of 11% yoy. Bank targets to grow assets ahead of the system in FY14
Sequential growth in deposits grew was strong at 10% while the annual growth was in-line with customer assets. Both current and savings balances grew at faster pace than overall deposits and resultantly CASA ratio improved by 80bps to 32.5%. Aided by substantial new salary account additions over the past six quarters (~74,000 in Q4 FY13 being the highest), savings balance growth is likely to have started to revive after being stagnant at 5-6% yoy for a while. New-to-bank CASA mobilization was higher at Rs4.3bn as compared to Rs3.9bn in Q3 FY13 partially explained by the higher number of new salary accounts added.
Against our expectation of 10bps contraction, IVB’s NIM surprisingly improved by 12bps qoq and reached an all-time high of 3.73%. While the cost of deposits was stable, blended lending yield improved by 8bps on account of shift in portfolio mix. FY13 NIM at 3.52% stood significantly higher than bank’s guidance of 3.2-3.3% but was in-line with our estimate. Bank is confident of sustaining margin in FY14. We believe improving CASA, relatively benign wholesale funding rates (35-40% exposure) and shift in loan mix would support margin in the current year.
Fee income weakened further and de-grew 9% yoy excluding Rs220mn accounting adjustment in FX/derivates income. Traction has been poor across key streams of liability related (-11% qoq/2% yoy), asset related (-13% qoq/12% yoy), trade finance & cash management (3% qoq/-7% yoy) and wealth management & advisory (39% qoq/-28% yoy). After resuming network expansion in the previous quarter, Bank added 10 branches in Q4 FY13. More branches are planned to be added in the next few quarters especially in the Northern and Western regions. C/I ratio was stable at near 55%, as opex growth was modest at 4% qoq/15% yoy.
IVB’s asset quality continues to remain pristine underpinned by robust loan profile (largely a working capital bank in corporate/SME segments and marginal exposure to ailing sectors). Aided by marginal slippages (Rs 390mn, delinquency ratio at 0.5%), Gross NPLs of the bank were flat sequentially. Conservative provisioning improved PCR to 98% and consequently lowered Net NPL ratio to 0.03%, lowest in the industry. Restructuring was negligible during the quarter and the outstanding book stood at marginal 1.1% of advances.
Driven by robust NIM and asset quality performance, RoA/RoE expanded to a multi-quarter high of 1.34%/15%. With Tier-1 capital at 10.5%, the bank would probably raise equity capital in H2 FY14.
We retain constructive view on IVB expecting elevated RoA delivery and improvement in RoE over FY13-15. However, the stock having witnessed significant valuation re-rating over the past nine months, we expect incremental re-rating to be much gradual. We revised our 9-month target price upwards to Rs676. IVB remains one of our preferred mid-cap banking pick.
|(Rs mn)||Q4 FY13||Q3 FY13||% qoq||Q4 FY12||% yoy|
|Total Interest Income||12,537||12,389||1.2||10,615||18.1|
|Net Interest Income||4,237||4,029||5.1||3,192||32.7|
|Key Ratios||Q4 FY13||Q3 FY13||chg qoq||Q4 FY12||chg yoy|
|Yield on Advances (%)||11.9||11.8||0.1||11.8||0.0|
|Cost of Deposits (%)||7.1||7.1||0.1||7.3||(0.1)|
|Non-interest income (%)||32.1||31.7||0.5||38.1||(6.0)|
|Cost to Income (%)||54.5||55.3||(0.9)||57.3||(2.9)|
|Gross NPA (%)||1.8<
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