But for the slight increase in bad loans, IndusInd Bank’s June quarter result was business as usual. Above industry loan growth, strong capitalisation, healthy growth in fee income and steady deposit growth — these sum up the bank’s performance in the latest June quarter.

IndusInd, which has been delivering 25-30 per cent earnings growth (year-on-year) in the last couple of quarters, continued its good run, with profit growing 26 per cent in the latest June quarter.

The predictability in earnings, amidst the weak performance of most public sector banks and few private banks, has kept investor interest up in the stock.

The stock currently trades at about 3.9 times one-year forward book against its three-year historical average of 2.8-3 times. The premium valuation is likely to sustain, thanks to its strong core performance and no nasty surprises on the asset quality front for now.

Stressed book stable

The bank witnessed a 20 per cent uptick in bad loans sequentially, from ₹1,055 crore in the March 2017 quarter to ₹1,272 crore in the latest June quarter.

But this has been due to two accounts slipping from the restructured book to bad loans. But the overall stressed assets book (NPA plus restructured) for IndusInd has remained stable at 1.2-1.3 per cent of loans.

The bank’s provision cover has inched up from 58 per cent in the March quarter to 60 per cent in the June quarter. This has been on account of floating provisions created during the quarter.

In the March quarter, the bank made a one-off standard provisioning of ₹122 crore against a loan for an M&A transaction in the cement industry (relating to Jaiprakash Associates that had sold its cement units to Aditya Birla Nuvo-controlled UltraTech Cement).

With the closure of the deal (about ₹33 crore has been held back as provisioning and not yet been reversed by the bank), the ₹70 crore that has been reversed has been used for creating a floating provision (rather than bumping up profits) and about ₹20 crore for accelerated provisioning.

Of the 12 accounts identified by the RBI for immediate resolution under the bankruptcy code, the bank has exposure to three accounts to the tune of ₹50 crore. The management stated that it has adequately provided for these accounts. IndusInd’s above-industry loan growth is a key positive. The loan growth over the past several quarters has been driven by both the corporate and retail segments.

Within the retail segment, about a third of loans comes from commercial vehicle financing. Growth in this segment, which had been moderating, has been further impacted by the implementation of BS IV norms and GST. After clocking 33 per cent growth y-o-y in 2015-16, the bank reported 11 per cent growth in 2016-17 and around 12 per cent in the June quarter.

Nonetheless, other segments within retail have been firing on all cylinders. The bank’s diversification into other segments such as car loans, credit cards and loan against property has helped.

While retail loans reported an overall growth of 22 per cent, the corporate segment climbed 25.8 per cent y-o-y in the June quarter, driven by working capital financing.

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