IndusInd Bank Ltd’s net profit rose 42% in the fiscal first quarter, beating analysts’ estimates, buoyed by higher demand for loans from companies and consumers.
The bank kicked off the result season on Wednesday by reporting a net profit of Rs.335 crore in the three months ended 30 June from Rs.236 crore in the year-earlier period. Loan demand rose 27% in the June quarter, double the growth rate of the banking industry.
IndusInd Bank had been expected to post first-quarter profit of Rs.317 crore, according to a poll of analysts by Bloomberg.
Net interest income increased 40% to Rs.679 crore from Rs.484 crore in the same period last year. Non-interest income rose 48% to Rs.471 crore, boosted by an increase in mark-to-market gains as the price of government securities rose during the quarter. The bank earned Rs.84 crore from the sale of investments in the quarter, up fromRs.38 crore last year.
Profits were higher despite the bank making an extra provision of Rs.50 crore during the quarter. Operating profit before provisions, at Rs.642 crore, was 59% higher than the Rs.404 crore recorded in the same period last year.
Managing director and chief executive officer (CEO) Romesh Sobti said that though the extra provisions were not mandatory, IndusInd Bank decided to set aside more money because its wants to increase its provision coverage ratio to 100% of total non-performing assets (NPAs).
“Whenever we record extraordinary profits, we will increase our provision, though floating provisions are not mandatory. This is because of our desire to maintain a high quality in our balance sheet,” Sobti said. The provision coverage ratio increased to 80% from 70% in 2012.
On Wednesday, IndusInd Bank shares ended at Rs.495.70 on BSE, down 1.25% from the previous close, while the benchmark Sensex fell 0.75% to close at 19,294.12 points.
The bank’s corporate loan book increased 30% to Rs.24,070 crore from April-June 2012, while the consumer finance book increased to Rs.23,355 crore up 24% from 2012.
Sobti said though IndusInd Bank had seen demand for loans higher than the banking system, the outlook was not encouraging “at all.”
“Only loan renewals are happening, there is no new demand. The market remains subdued and I do not see any new drivers of credit growth,” he said, adding that the bank finances mostly working capital loans.
Although the economy remains sluggish, banks like IndusInd have found “pockets of growth” to depend on, said Puneet Gulati, an analyst at JM Financial Securities Ltd.
“I don’t see any headwinds for IndusInd Bank as of now. Even the commercial vehicle portfolio which has seen a tapering off in growth has seen just a 2 basis point (bps) rise in NPAs,” Gulati said adding that the bank’s decision to set aside a part of its gains in provisions was a prudent move. One bps is 0.01 percentage point.
The lender’s net interest margin, or the difference between interest on loans and that on deposits, improved to 3.72% from 3.22% in the quarter ended June 2012.
Sobti said he expects the bank’s cost of funds to drop, which will help it reduce lending rates while maintaining margins.
“The 90-day certificate of deposit rate has already come down by 50 to 60 bps and as deposit costs come down, we will reduce lending rates. In fact in the last few months our average yield on corporate advances has come down to 11.25% from 11.39% without a reduction in base rate,” Sobti said.
IndusInd Bank’s cost of funds fell to 6.75% in the quarter ended June from 6.81% in the quarter ended March.