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A Rs 525-crore contingency provision during the July-September period led to a 19 per cent fall in IndusInd Bank’s share price on Friday (October 25).
Contingency provisions are generally made when a lender expects more bad loans in the coming quarters.
Shares of the bank on Tuesday (October 29) declined 1.53 per cent to settle at Rs 1,038.2 apiece on the BSE.
Fresh additions to non-performing assets (NPAs) were Rs 1,798 crore which resulted in gross non-performing assets (gross NPAs) increasing to Rs 7,639 crore or 2.11 per cent of gross advances, up from 2.02 per cent in the preceding quarter.
“IndusInd Bank reported yet another soft quarter with weakness on multiple fronts reflecting persistent niggles.
"The only silver lining was the endeavour to strengthen the balance sheet by creating Rs 5 billion contingency provisions, but the timing is questionable given the weak core performance quarter,” Elara Capital said in a note.
Increase in gross NPA was almost across the consumer banking book — commercial vehicle, credit cards, tractor financing.
The worst hit was the micro loan book. NPAs in microfinance institution (MFI) loans went up to Rs 2,259 crore from Rs 1,988 crore in Q1.
“Gross slippages inched up to 2.1 per cent. MFI gross slippages rose to 5 per cent of loans and are lower than that of peers, but a rise in other segments was disappointing,” IIFL Securities said in a note.
“We expect credit cost to remain elevated in the near term due to forward flows and ageing-related provisions,” it said.
IndusInd’s credit cost in Q2 was 2.1 per cent as compared to 1.2 per cent in the previous quarter.
There was more bad news, too, particularly on the growth front.
Loan growth was 13 per cent year-on-year (Y-o-Y) (and 2.7 per cent sequentially).
It was mainly due to contraction in microfinance and slowdown in vehicle loan portfolio.
The MFI book contracted for the second consecutive quarter, from Rs 39,192 crore in Q4 of FY25, to Rs 37,046 crore in Q1, and to Rs 32,723 crore in Q2.
The vehicle finance portfolio grew 1 per cent quarter-on-quarter (Q-o-Q) to Rs 90,619 crore.
The slower credit growth has impacted fee income and margins.
The fall in yield on advances, from 12.57 per cent in Q1 to 12.31 per cent in Q2, resulted in net interest margins (NIMs) declining to
4.08 per cent, down 17 basis points (bps) Q-o-Q.
“Bank has held up its margins for a while, but it corrected by 17 bps Q-o-Q to 4.08 per cent due to lower loan deposit ratio (LDR) and
lower interest yields.
"Management expects the margins to remain range-bound in the near term, but should improve once the rate-cut cycle begins and growth normalises,” Emkay said in a note.
Due to higher provisioning, the capital adequacy ratio (CAR) slipped to 16.51 per cent from 17.55 per cent sequentially, while common equity tier-1 (CET1) ratio fell from 16.15 per cent to 15.21 per cent.
Going ahead, the bank said growth will be calibrated.
“IndusInd Bank had previously guided for a loan growth of 18-22 per cent for FY25.
"However, with the bank’s cautious view on unsecured growth, we estimate loan growth at 13 per cent,” broking firm Motilal Oswal said.
Amid the headwinds, the bank faces uncertainty over its managing director (MD) & chief executive officer (CEO) Sumant Kathpalia’s extension.
Last year, the Reserve Bank of India (RBI) extended the CEO’s term by two years from March 24, 2023, even as the board approved a three-year extension.
Earlier this month, the bank’s board again approved his extension for three years, effective March 24, 2025 up to March 23, 2028.
The re-appointment is subject to the regulator’s approval. Kathpalia has been MD & CEO of the private sector bank since March, 2020.
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