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Business News/ Market / Mark-to-market/  IndusInd Bank: slow growth in retail loan book in June quarter
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IndusInd Bank: slow growth in retail loan book in June quarter

The bank continues to focus on the corporate business at a time when consumer confidence is not high

Slowing growth in the commercial vehicle business continued to weigh on IndusInd Bank’s retail loan book. Photo: BloombergPremium
Slowing growth in the commercial vehicle business continued to weigh on IndusInd Bank’s retail loan book. Photo: Bloomberg

IndusInd Bank Ltd has managed to do reasonably well in the June quarter. It continues to focus on the corporate business at a time when consumer confidence is not high. Fee income grew 38%, helping boost net profit growth to 25.7% from a year ago in a typically slow quarter. The flip side is that a higher proportion of corporate loans weighed on margins.

Net interest margin declined by 10 basis points from a quarter ago to 3.66%. Corporate loans now account for 57% of IndusInd Bank’s book from 55% at the end of March. The worry is that around half of the growth comes from medium and small-sized companies where the credit costs are substantially high.

Slowing growth in the commercial vehicle business continued to weigh on IndusInd Bank’s retail loan book. The growth in utility vehicles, small commercial vehicles and two-wheeler loans slowed further in the June quarter. The management in a post-earnings conference call with analysts said it expected weak growth in the commercial vehicle segment in the current quarter as well owing to poor rainfall.

Overall, the bank was able to maintain advances growth at 24% for the fourth straight quarter, which is commendable given that the three months ended 30 June see poor credit growth. Moreover, deposit growth improved to 15% from around 12% in the previous quarter. The bank was able to improve its current and savings account deposit ratio to 33.3%.

Coming to the all-important issue of asset quality, there was a slight deterioration. Gross non-performing assets (NPAs, or bad loans) increased by 5.4% sequentially to 654 crore and there was a marginal growth seen in restructured assets as well. However, overall stressed assets (bad plus restructured loans) remain under 1% of total advances.

IndusInd Bank shares have under-performed the BSE banking index in the past three months. However, that is probably owing to the stock’s relatively rich valuation of 2.8 times its FY15 book value. Given that many banks are still trading below that valuation, IndusInd Bank will have to boost its earnings growth and profitability. That will likely happen when growth in the consumer book picks up.

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Published: 09 Jul 2014, 08:45 PM IST
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