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Home >Markets >Mark To Market >IndusInd Bank eyes growth even as its asset quality needs watch
The management, however, was optimistic on loan growth. Photo: Mint
The management, however, was optimistic on loan growth. Photo: Mint

IndusInd Bank eyes growth even as its asset quality needs watch

  • The private sector lender reported a 13% year-on-year growth in core interest income, which was slower than the previous quarter
  • The growth was largely because of big savings on interest expenses due to deposit rate cuts.

IndusInd Bank Ltd’s September quarter metrics didn’t inspire optimism beyond the marginal beat in the quarterly net profit.

The private sector lender reported a 13% year-on-year growth in core interest income, which was slower than the previous quarter. Also, the growth was largely because of big savings on interest expenses due to deposit rate cuts. Loan growth rate was just 2% for the quarter and its corporate and micro finance loan book shrank marginally.

Source: Bank presentations
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Source: Bank presentations

What’s more is its other income dropped 10% led by a sharp 28% fall in core fee income.

The bank’s core competence of vehicle loans, which form a third of its loan book, grew by just 3%. To be sure, the management had indicated earlier that it would not run behind growth in the second quarter owing to the risks from the pandemic.

Clearly, the September quarter was, hence, for consolidation and shoring up insurance against asset quality risks.

IndusInd Bank jacked up its insurance against future risks by setting aside 1,964 crore as provisions, nearly twice of what it provided a year ago. Managing director Sumant Kathpalia said the bank would continue to provide for risks in the coming quarters as well.

The management, however, was optimistic on loan growth. An increase in loan demand from micro finance and tractor loans seems to give the lender confidence that loan growth will revive in the coming quarters. “There is a huge demand for tractor loans. Microfinance is a segment where growth is coming up," he said in a media call on Friday.

In the September quarter, the 17% growth in tractor loans overshadowed other segments.

IndusInd Bank, once priced to perfection for its growth prospects, has been on a tough journey in the past two years. Asset quality metrics have turned worse over the past year and the pandemic has added to its woes. The management has said that it does not expect huge demands for restructuring and its collection efficiencies have increased to 94.7%. In other words, 4.3% of its loan book saw defaults as of September.

But IndusInd Bank’s silver lining was a 10% growth in deposits. The bank had seen an outflow of deposits in the March quarter but has witnessed encouraging signs since.

Kathpalia said deposits are expected to grow faster than loans in FY21. IndusInd Bank has surely got its depositors back but for investors to warm up, the lender needs to show growth.

More so, IndusInd Bank needs to show growth without asset quality troubles. The bank’s stock has trailed peers so far this year, reflecting investors’ worry over asset quality.

Amid talks of a merger with Kotak Mahindra Bank Ltd, IndusInd Bank’s management has stressed that the lender is looking forward to getting back on the growth path on its own.

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