Home / Markets / Mark To Market /  What's driving IndusInd Bank stock?

Improving systemic credit growth has had a favourable influence on banking stocks. A case in point is IndusInd Bank Ltd, shares of which touched a 52-week high of 1,275.80 on 20 September.

Expectations are that the recovery in its core segments of commercial vehicle (CV) lending and micro-finance will give overall loan growth a boost. Motilal Oswal Financial Services expects an 18% loan compound annual growth rate over FY22-24.

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Also, with improving business activity, the bank’s credit cost would ease. Investors would remember that the bank’s micro-finance institution (MFI) disbursements took a hit in the June quarter (Q1FY23) following the Reserve Bank of India’s revised master direction requiring assessment of household income. Consequently, its MFI loan portfolio had dropped 4% sequentially in Q1 to 29,403 crore. Last quarter, the consumer segment accounted for 54% of the bank’s loan portfolio. Within this, the loan mix of vehicle finance and MFI comprised around 48% and 22%, respectively.

High slippages led by the restructuring book, mainly from these two segments weighed on the bank’s asset quality in recent quarters. However, with reducing stress in these categories, asset quality risks are seen easing. So, things are set to improve for IndusInd.

Investors have taken note. So far, in FY23, the IndusInd stock has risen by 24%, while the Nifty Bank index has increased by 5%.

Analysts at ICICI Securities Ltd expect MFI disbursements to normalize post the disruption in Q1FY23. “Bank took 40-45 days to align the processes and operations to assessment of household income, household expenditure and cap on loan repayment obligations," the analysts said in a 24 September report. Also, in a bid to diversify its MFI portfolio, the bank would be looking at offering a range of products.

On the flip side, IndusInd’s restructured assets are slightly higher than some other private banks such as HDFC Bank, ICICI Bank and Kotak Mahindra Bank, said Bunty Chawla, assistant vice president at IDBI Capital Markets & Securities Ltd.

As such, investors should remain watchful of this parameter in Q2 earnings.

Another key metric for IndusInd, the net interest margin, is expected to improve gradually. This is because about 50% of its advances are fixed-rate in nature, so the benefit of rising interest rates will likely be reflected with a lag, said the analysts at ICICI Securities.

Among other bank-specific factors, the management’s commentary on loan growth and slippages would be key to track.

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