IndusInd Bank: A well-diversified portfolio pays off

Strong loan growth has kept the bank’s earnings buoyant

IndusInd Bank has been registering 25-30 per cent earnings growth in the last couple of quarters and it kept up its performance in the latest December quarter as well, reporting a 25 per cent rise in net profit.

Above-industry loan growth, healthy uptick in fee income, and robust traction in low-cost deposits sum up IndusInd’s third quarter performance.

But for the slight increase in bad loans — from 1.08 per cent of loans in the September quarter to 1.16 per cent in the December quarter — it has been business as usual for the private lender. The rebound in commercial vehicle financing, a third of its retail loans, has been a key driver for the bank’s loan growth.

After clocking a modest 11 per cent growth in 2016-17, growth in the CV segment has been inching up over the past three quarters; in the December quarter, CV loans reported a 23 per cent year-on-year (y-o-y) growth.

Steady state

Over the past year, even as asset quality concerns emerged across several private sector banks, IndusInd’s performance remained resilient.

A well-diversified portfolio has led to the bank reporting above-industry loan growth.

In FY17, for instance, even as growth in commercial vehicle financing slowed, other segments within retail, such as car loans, credit card and loan against property kept loan growth in good stead.

Within corporate loans too, a broad portfolio helped. The bank’s largest single exposure is capped at 5.4 per cent, to the gems and jewellery sector.

Given that IndusInd is one of the largest CV financiers in the country, consistent uptick in commercial vehicle loans augurs well for its earnings in the coming quarters.

IndusInd reported a strong 25 per cent growth in loans and, in turn, a healthy 20 per cent growth in its net interest income during the December quarter. The healthy growth of 17 per cent in the bank’s fee income has further aided earnings.

The marginal fall in net interest margin from 4 per cent in the September quarter to 3.9 per cent in the December quarter has been on the back of decline in yields on advances. However, given that the bank has a relatively higher proportion of fixed rate loans (70 per cent), margins have remained more or less stable over the past year.

A healthy traction in low-cost CASA deposits has also aided margins. The bank’s one-year MCLR has fallen from 9.45 per cent as of December 2016 to 8.85 per cent as of December 2017. The 60-odd basis points fall in yields over the past year has been offset by the commensurate fall in cost of deposits.

IndusInd’s bad loans have been under check, despite the stellar run in loans.

The slight increase in bad loans during the December quarter has been broad-based and not specific to any one particular account.

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