At a time when credit demand has slowed to a crawl, IndusInd Bank Ltd’s retail play is paying rich dividends. Total advances for the banking system grew just 0.1% in the second quarter compared with 1.4% in the June quarter.

In comparison, IndusInd Bank’s loan growth came in at 6% for the September quarter, the same rate as in June. That translates into a 31% growth from a year ago. The boost, as has been the case in the past few quarters, came from the consumer financing book.

Loans to retail customers grew 45% from a year ago, marginally less than the 48% year-on-year growth seen in the June quarter. However, deposit growth disappointed a bit. Year-on-year growth in deposits was 25% for the September quarter, compared with 28% in June.

While that meant the bank had to rely on borrowings to fund this kind of credit growth, note that liquidity conditions have improved in the system. That meant that cost of borrowings came down by 7 basis points compared with the June quarter. A basis point is one-hundredth of a percentage point.

Secondly, even if the pace of deposit growth has slowed, IndusInd Bank has been focusing on low-cost current and savings account deposits. Zero-interest current account deposits are picking up again and now account for 16.9% of total deposits compared with 16.5% in the June quarter.

With yields on advances remaining stable, the lender was thus able to improve its net interest margin by 3 basis points over June to 3.25%.

The strong loan book growth, in turn, meant that net interest income grew 22% from a year ago. But non-interest income growth was lower at 34% compared with 48% in the June quarter, primarily because of losses in trading income. Core fee income growth remained robust at 40%.

Still, net profit grew at 30% over a year ago to 250.25 crore.

Is there any point of concern in the bank’s financials? While its bad asset numbers are remarkably robust, gross non-performing assets as a proportion of its loan book grew to 1.03% from 0.97% at the end of June. But that’s still among the best numbers in the industry.

Secondly, this fast pace of growth has meant that IndusInd Bank’s capital adequacy ratio (without profit) has slipped from 14.32% from a year ago to 11.76%. While that is still above the required norm, it means that the bank has to raise capital as it has planned to do this year.

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