Q1 COMMENT. IndusInd begins earnings season on upbeat note

Bank earnings marred by the RBI’s asset quality review in the last two quarters have been keenly awaited. Among the larger private lenders, IndusInd Bank kicked off the earnings season on an upbeat note.

The bank continued its robust growth in profits; profits have recorded a 25-30 per cent year-on-year growth in the last couple of quarters. For the June-ending, quarter profits grew 26 per cent year-on-year, driven by strong growth in core net interest income of 38 per cent. Healthy traction in loans and deposits, and a stable asset quality, were key positives in an otherwise lacklustre setting for the banking industry, wherein the overall growth in both deposit and loan continue to languish in the 8-9 per cent levels. Growth in loans for IndusInd in the June quarter has been led by both the corporate and retail segments. Within the retail segment, wheels of fortune turning in favour of the commercial vehicles (CV) segment has driven the bank’s loan growth over the past year.

Since 2013-14, IndusInd Bank’s retail loan growth had slowed due to sluggish growth in the CV segment, which constitutes more than a third of its retail loans. However, thanks to volumes pick up in the CV segment in 2015-16 – heavy commercial vehicles in particular has seen a strong 30 per cent volume growth – IndusInd has been able to witness a steady credit off take.

From 10 per cent in FY15, loan growth in the CV segment vaulted to about 33 per cent in FY16. In the June quarter, credit growth in the CV segment was a healthy 21 per cent YoY. Volume growth in the CV segment will most likely continue on a strong footing, given the gradual recovery in the economy and pre-buying demand before implementation of BS-IV norms from April 2017.

Steady growth in retail loans has led to a shift in the loan mix in favour of retail. From 41 per cent in FY15, retail loans now account for a higher 43 per cent of loans as of June 2016. However, corporate loans too continued to grow at a healthy pace, rising 30 per cent YoY. While most banks are grappling with the issue of slowdown in deposits, IndusInd has been able to maintain its traction in deposit growth, particularly with low-cost CASA (current account and savings account) deposits. After maintaining a run rate of 22-25 per cent year-on-year growth in deposits through the FY16 fiscal, the bank has raised the bar a tad higher by growing its deposit base 31 per cent in the June quarter, with CASA growth a healthy 30 per cent.

A fall in cost of funds over the past year has aided the bank’s margins. Cost of funds fell by about 70 basis points in the June quarter YoY.

The morass of bad loans within the sector has also not been an area of concern. The strong growth in loans has not impacted the bank’s asset quality. While the gross non-performing assets (GNPA) has inched up marginally from 0.87 per cent of loans in the March quarter to 0.91 per cent in the June quarter, it is still far lower than that of most public sector banks. Restructured assets as a proportion of loans are also at a comfortable 0.49 per cent.