The markets were expecting an annual growth of 40-50% in net interest income (NII) and an expansion in net interest margin (NIM). Instead, the company reported a 30.5% increase in NII year-on-year. Chief financial officer Rajat Monga says the 41.5% growth in advances isn’t fully reflected in last quarter’s NII. Besides, cash losses on interest rate swaps trading had to be booked under other interest income because of accounting rules, unlike the practice of accounting for mark-to-market losses on such trades under non-interest income. Adjusted for this, NII growth would be over 40% and NIM would expand well over the reported level of 3.1%.

Monga says that the firm has grown loans by 28.5% since the June quarter and that the credit opportunity available are wonderful currently. The company also plans to raise $150-200 million through a qualified institutional placement issue before the end of the current fiscal to March, which will increase its tier-I capital. While Monga’s explanations are reasonable, the stock’s current valuation of four times its book value more than factors in its growth potential.

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