The stock ofIndusInd Bank Ltd rose 7% on Wednesday after the lender said its net profits for the three months to June was Rs86.50 crore, a 353% growth compared with the same period last year. The rise in operating profit, at 280% year-on-year (y-o-y), was also remarkably high.
Profits have been boosted by the Reserve Bank of India’s (RBI) open market operations, in which the central bank buys securities from the market. IndusInd was able to book a profit of Rs45 crore on the sale of illiquid securities to RBI in the June quarter. The bank also made substantial trading gains of Rs42 crore.
Given the difficult situation the bank faced a year ago, perhaps it makes more sense to compare the June quarter results with those for the March quarter. On that basis, net interest income was higher by 16%, not only because of higher loan growth but also due to higher net interest margins (NIM). Interest rates on deposits have fallen more than yields on advances. As a result, NIM rose from 2.48% in the three months to March to 2.6% in the June quarter. There’s still ample scope to improve NIM.
Operating profits were higher by 15% compared with the March quarter, though net profit was up 71%. The difference between the two growth rates is because provisions and contingencies are much lower in the three months to December. In the March quarter, the bank had aggressively provided for some bad loans, such as writing off 100% of the loans provided to distressed discount retailer Subhiksha Trading Services Ltd. In the June quarter, out of the Rs34 crore in provisions, Rs10 crore is for bad loans, Rs8 crore for restructured assets and the remaining for standard assets.
Restructured loans increased to Rs76 crore at the end of June, compared with Rs38 crore at the end of March. This led to lower non-performing assets (NPAs), with net NPAs being 1.01% of advances, compared with 1.14% at the end of March. In the current quarter, it has restructured a loan to Maytas Infra Ltd.
Operating profits were higher by 15% compared with the March quarter, though net profit was up 71%. Ahmed Raza Khan / Mint
Advances are up 24% y-o-y, while deposit growth has been 19%. The bank’s deposits at the end of June were in fact lower than at the end of March. A bank official said on condition of anonymity that a decision had been taken to avail of refinance facilities that were not earlier used, since they were lower than the cost of deposits. Some wholesale deposits were accordingly not renewed. In the future, deposit growth will be back, the official said.
The bank has announced that it will raise $75-100 million to boost capital by selling shares to institutional buyers. The qualified institutional placement should result in equity dilution of around 10-15%, say analysts, but will provide the fuel for further growth.
At Rs83, IndusInd is trading at over two times its adjusted book value at the end of June and it has outperformed the banking index, Bankex, on the Bombay Stock Exchange handsomely. But not all of the gains from the restructuring of the bank have been realized and we’re likely to see consistently strong growth in the future.
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