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IndusInd Bank’s Q2 profit falls 53%, terms Kotak merger as ‘speculative’

CEO calls reports of merger with Kotak Mahindra Bank speculative

MUMBAI : Private lender IndusInd Bank Ltd on Friday termed as “purely speculative" a media report of it merging with bigger rival Kotak Mahindra Bank Ltd. The comments came on a day when IndusInd Bank reported a 53% year-on-year (y-o-y) drop in net profit in the September quarter to 647 crore, though the figure surpassed Street expectations.

“I cannot comment on speculation but can assure you this much that there are no such talks with the promoter, who themselves have issued a clarification," said Sumant Kathpalia, chief executive (CEO), IndusInd Bank. This comes after Bloomberg reported on 25 October that Kotak Mahindra Bank is in talks to acquire IndusInd Bank, citing unnamed people.

IndusInd International Holdings Ltd (IIHL), the bank’s promoter, said on 25 October that it “completely denies the said rumour and considers it malicious, untrue and baseless". “IIHL is promoted by the Hindujas and a broad base of other successful non-resident Indians. They reiterate their full support to IndusInd Bank, now and always," according to a statement from the promoter.

IndusInd Bank’s fiscal second quarter profit topped the 611.5 crore estimate in a Bloomberg poll of 15 analysts. A more than doubling of total provisions to 1,964 crore hurt quarterly profit. Net interest income (NII), the difference between interest earned and expended, rose 12.6% y-o-y to 3,278 crore in the fiscal second quarter. The bank’s net interest margin (NIM), a key measure of profitability, stood at 4.16%, down 12 basis points (bps) sequentially and up 6 bps y-o-y. Other income or non-interest income fell 10% to 1,554 crore.

On the recast of stressed assets because of the pandemic, Kathpalia said the bank is identifying the restructured accounts that will continue till December-end. “To give any such number will be incorrect as of now and we believe this will be in low single-digits. There are some queries but not substantial," he said.

IndusInd Bank’s asset quality was largely unchanged in Q2 with bad loans as a percentage of total loans at 2.21%, down 2 bps y-o-y. Net bad loan ratio stood at 0.52%.

The Supreme Court on 3 September ordered an interim stay on classifying bad loans if not declared so by 31 August and banks are expected to use this relaxation in Q2 or till the final orders are passed. Had such an order not been passed, the pro- forma gross non-performing asset (NPA) and net NPA ratio of the bank would have been 2.32% and 0.61%, respectively.

“The extent to which covid-19 will impact the bank’s operations and financial results is dependent on the future developments, which are highly uncertain," the bank said.

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