Q3 comment. IndusInd Bank: The good show continues

The December quarter results for banks were expected to be anything but predictable, given the challenges thrown up post-demonetisation. Slowdown in credit growth, pressure on margins owing to the temporary hike in cash reserve ratio (CRR), and a possible increase in delinquencies, were pegged as some of the headwinds for the quarter.

But IndusInd Bank that kicked off the earnings season, continued to deliver strong earnings performance in the December quarter, hardly deviating from its past performance. The bank’s well-diversified loan portfolio leading to minimal disruption in credit offtake, higher proportion of fixed rate loans cushioning margins and stable asset quality, kept its earnings in good stead.

Good traction The latest figures put out by the RBI paint a dismal picture for the sector, with loan growth dipping to a meagre 5-odd per cent as of December 23. But IndusInd Bank has been able to grow its loan book by 25 per cent year-on-year even in the December quarter, led by both the corporate and retail segments. A granular loan portfolio has helped.

The corporate book in itself is well diversified with the largest single exposure capped at 5.9 per cent to gems and jewellery. Within the retail segment, over a third of loans come from commercial vehicle financing. CV financing grew 10 per cent in the December quarter, despite concerns of a marked slowdown owing to cash-crunch. After clocking 33 per cent growth in 2015-16 and 14.9 per cent in the September quarter, growth has moderated. But the management indicated some pick-up during the quarter.

The bank’s diversification into other segments, such as car loans, credit card and loan against property — over the past couple of years — has helped it offset some of the slackness in the commercial vehicle business. These segments continued to witness strong growth in the December quarter as well.

Deposit mobilisation IndusInd Bank’s deposit growth, which was already growing at a robust pace, received a fillip, post-demonetisation, as was expected. Deposits grew 38 per cent year-one-year in the December quarter, with savings deposits growing 56 per cent. This triggered a notable fall in deposit rates and hence, cost of funds. In the December quarter, cost of funds fell about 25 basis points sequentially. But the temporary hike in CRR along with deployment of surplus funds into low-yielding assets, was expected to offset some of the gains from fall in cost of funds for many banks.