IndusInd Bank Ltd continued its incredible run of good results in the March quarter, with a year-on-year (y-o-y) net profit growth of 94%. In the December quarter, net profit grew at 95% y-o-y.
How did the bank do it? Net interest income was up 89%, thanks to the net interest margin (NIM) moving up to 3.19% from 2.33% in the year-ago period and 2.94% in the December quarter. While yield on advances fell, the cost of deposits fell even more, bolstering margins. Low-cost Casa (current and savings accounts) has been increasing steadily and was at 23.7% by end-March, compared with 22.5% at end-December. Core fee income increased by 47% from a year ago.
What’s more, the bank has been able to grow without increasing bad loans. Net non-performing assets fell to 0.50% of advances from 0.67% at end-December. The bank’s loan-loss provisions used to be very low and the Reserve Bank of India’s directive to have 70% provisioning by September this year was expected to hit its profit. But that hasn’t happened, although IndusInd has been able to increase provision coverage to 60%, even without the so-called technical write-offs. The bank’s chief risk officer K.S. Sridhar says it wants 70% coverage without the fig leaf of technical write-offs and is likely to achieve close to that by the end of the current quarter.
Graphic: Naveen Kumar Saini/Mint
What of the future? The bank is targeting a 30% rise in advances in fiscal 2011. Corporate loans form around 60% of the bank’s book, while the rest is retail. Within retail, around half is made up of loans to commercial vehicle owners with one or two trucks. This segment has started to look up and it’s likely that both segments will grow at the same pace in FY11. The bank also has plans to offer new products such as loans against property, personal loans and credit cards. It’s also going in for a major rebranding exercise this year, but Sridhar says the expense won’t hurt profit as it has already been provided for.
With interest rates going up, the yield on advances, too, should improve. The bank is applying for adding another 130 branches this fiscal and that should boost Casa. In short, spreads should improve, and there’s no reason why NIMs should not, in due course, reach the 4%-plus levels.
At its current price, the IndusInd Bank stock trades at 3.5 times adjusted book value as at the end of March. That makes the stock expensive, especially since it has plans to raise around Rs600 crore or so of equity capital through a qualified institutional placement or offering of global depository receipts to boost its tier I capital.
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