Target: ₹375
CMP: ₹266.65
We met Indian Bank’s MD & CEO to discuss the bank’s near-to-medium term business strategy. Unwavering focus on margins, instead of chasing credit growth: Bank maintains clarity on achieving growth without compromising on margins; thus, it would avoid chasing growth in its corporate book.
Consequently, bank guides for 13-14 per cent credit growth in FY23 (lower than the system at 15-16 per cent) and foresees maintaining a similar trend in FY24, based on macro conditions and focus on margins.
Though current blended CoF is 4.3 per cent, incremental CoF is greater than 6 per cent on TDs; hence, the bank would continue to focus on growing its RAM book (Retail – Housing/VF/Gold loans; Agri – Agri Gold loans and MSME) to support margins.
Indian Bank benefited the most from its merger with east-India based Allahabad Bank, in terms of CASA, which stands high at 40 per cent amongst peers. Bank has recovered well from the merger/ILFS pain, with its NNPA ratio now being one of the lowest among PSBs, at 1 per cent.
We expect the bank to report 0.8 per cent RoA in FY23 and reach 1 per cent by FY24/FY25, led by a healthy margin trajectory, improving fees (incl. PSLC) and normalisation of credit cost (1.1-1.2 per cent, from a high of over 2 per cent).