IndusInd Bank's strong quarter marred by increase in provisions

IndusInd Bank Limited, a leading private bank, provides a range of Banking and Financial Services including wholesale banking, credit monitoring, risk management, telebanking, investment banking, and commercial lending. The Bank operates approximately 1,000 branches. The company has operations in India as well as in London, Dubai, and Abu Dhabi.

Shares of IndusInd Bank climbed more than 10% intraday after many brokerages gave 'buy' call on the stock due to its better-than-expected operationally strong March quarter performance.

The bank's net interest income (NII) rose 5% sequentially and 45% YoY to Rs 3,231 crore during Q4FY20. Besides, it logged the highest-ever net interest margin (NIM) of 4.25%, up from 4.15% in Q3FY20, and 3.59% in the previous quarter ended in March 2019. Higher growth in the high-yield retail loan portfolio and refinance of liabilities supported the bank’s top-line growth despite poor growth in loan advances. Furthermore, the bank's pre-provision operating profit (PPoP) grew 38% YoY to Rs 2,860 crore. For the entire FY20, its NII, PPoP, and net profit grew 36%, 34%, and 35% on a YoY basis respectively.

The Mumbai-based bank's gross non-performing assets (NPAs) as a percentage of loan books stood at 2.45% as of March 2020, an increase of 27 basis points (one basis point is equal to 0.01%) sequentially. Write-offs of Rs 1,490 crore confined the overall gross NPA pressure in Q4. Net NPA stood at 0.91%, down 30 basis points from 1.21% in Q4FY19.

The provisioning for IL&FS, two fraud accounts (each from the housing finance and travel sectors) and telecom loan accounts, and the impact of Covid-19 pandemic led to provisions surging to Rs 2,440 crore, from Rs 1,043 crore in the December 2019 quarter (Q3) and Rs 1,561 crore in the previous quarter ended in March 2019. The bank provided Rs 283 crore (including floating provisioning of Rs 260 crore) for the coronavirus impact. The bank's credit cost, which is bad loan provisioning as a percentage of the average loan book, shot up to 86 basis points in Q4FY20, from 28 basis points in Q3FY20. With this, IndusInd’s provision coverage ratio stood at 63% as of March 2020, up from 53% as of December 2019.

Overall, the lender's pre-tax profit declined 22% YoY and 77% QoQ to Rs 302 crore.

According to Mr. Sumant Kathpalia, Managing Director & CEO, of the same, During FY20, as well as Q4FY20, the Bank has witnessed healthy growth in its topline as well as in its pre-provision operating profits. The Bank’s Capital to Risk (Weighted) Assets Ratio (CRAR) remains strong. Provisioning Coverage Ratio (PCR) has also improved significantly. During the quarter, there was a considerable slowdown in economic activities due to the outbreak of COVID-19 which did have an impact on business volumes across sectors. However, given the Bank’s long operating history, it has seen several business cycles and has always demonstrated an ability to manage the portfolios effectively in such times, and emerge stronger.

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