Private sector lender IndusInd Bank has reported excellent results for the December quarter. Net profit, at Rs45.06 crore, was up 80% year-on-year, while operating profit, at Rs104 crore, was up 60%. Higher net interest income, higher fee income and Rs40 crore worth of profits on sale of investments all contributed to the increase. The distribution of third-party products improved substantially. Net interest margin (NIM), at 1.95%, was also higher than during the previous quarter.
The December quarter was a difficult one for the banking industry and IndusInd Bank, like most banks, went slow on increasing exposure. Nevertheless, advances outstanding rose 2.3% compared to the end-September level. Deposit growth, however, was more robust. Low-cost current and savings accounts (Casa) went up from 17.5% at the end of the previous quarter to 18.4%.
The highlight of the quarter was a substantial decrease in bad loans, with gross non-performing assets (NPAs) coming down to 1.8% from 3% at the end of September and net NPAs down to 1.3% from 2.2% in September. Apart from the settlement of a particularly large bad advance, asset sales also contributed to the lower NPAs. The bank also provided extra provisioning to clean up its balance sheet.
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The big question, of course, is whether IndusInd Bank can sustain such a high rate of growth. The management says that it’s confident of being able to sustain higher-than-industry growth for a while, because of its low base. NIM is expected to be around 2%, partly because of an expected rise in Casa (the bank’s strategy is to shift from wholesale to retail deposits). What’s more, the management also expects the NPA ratio to improve further. The strategy is to continue to provision for bad loans, bringing down the net NPA percentage. The very low growth in advances in the December quarter is also an aberration, which should be rectified.
The IndusInd Bank stock has been underperforming the BSE Bankex for quite some time, probably on concerns about its comparatively high level of NPAs and low Casa. But it’s time the bank’s current impressive performance starts to change old perceptions.
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Graphics by Paras Jain / Mint