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Home / Markets / Mark To Market /  Growth cheers but IndusInd Bank’s recast loans are a source of worry

IndusInd Bank Ltd reported a stellar 73% growth in net profit for the September quarter, beating street estimates comfortably. Both core interest income and fee income contributed to profit growth, which should comfort investors.

After a painful first quarter in growth due to the second wave of the pandemic, IndusInd Bank witnessed a swift rebound in disbursements. Loan growth was 10% year-on-year (y-o-y), interestingly driven by corporate loans, which grew 16%. Retail loans, on the other hand, grew by just 5.1% y-o-y. The reason for this is that IndusInd Bank’s key lending segment, commercial vehicle loans, is still not out of the woods.

The private sector lender remains cautious as these loans have shrunk over the past one year. As such, the share of vehicle finance segment in the overall loan book is down to 27% from 30% a year ago. To be sure, disbursements jumped sequentially. On Wednesday, the bank’s managing director Sumant Kathpalia said the portfolio is improving. “Commercial vehicle has been hit because of the pandemic but we are seeing continuous improvement. It also needed some restructuring."

A slow turnaround
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A slow turnaround

IndusInd Bank Ltd reported a stellar 73% growth in net profit for the September quarter, beating street estimates comfortably. Both core interest income and fee income contributed to profit growth, which should comfort investors.

After a painful first quarter in growth due to the second wave of the pandemic, IndusInd Bank witnessed a swift rebound in disbursements. Loan growth was 10% year-on-year (y-o-y), interestingly driven by corporate loans, which grew 16%. Retail loans, on the other hand, grew by just 5.1% y-o-y. The reason for this is that IndusInd Bank’s key lending segment, commercial vehicle loans, is still not out of the woods.

The private sector lender remains cautious as these loans have shrunk over the past one year. As such, the share of vehicle finance segment in the overall loan book is down to 27% from 30% a year ago. To be sure, disbursements jumped sequentially. On Wednesday, the bank’s managing director Sumant Kathpalia said the portfolio is improving. “Commercial vehicle has been hit because of the pandemic but we are seeing continuous improvement. It also needed some restructuring."

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That brings us to the lender’s restructured loan pile, which grew to 3.6% of the total book in the September quarter.

Granted, IndusInd Bank reported an improvement in bad loan metrics with ratios showing a decline sequentially. Even so, investors must watch this restructured loan pile closely. The management has assured that the pile is showing improvement in performance. But it remains one of the highest in the industry. One comfort is that the bank has a decent provisioning coverage against stress. Shares of IndusInd Bank have matched the performance of the broad Nifty over the past six months. From here on, the lender would have to show resilience in asset quality.

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