Indian Bank Unveils Surprise Repayment Boost From Modi Cash Ban

(Bloomberg) -- IndusInd Bank Ltd., the first Indian lender to report earnings following the government’s ban on high-value rupee notes, revealed a surprise boost from the so-called demonetization policy on Tuesday, saying that it had driven delinquent borrowers to repay loans with their invalidated currency.

“Demonetization had a beneficial impact on asset quality as repayments came in faster,” Chief Executive Officer Romesh Sobti told reporters on after IndusInd posted a surprise record profit for the December quarter. “We were surprised to see some of the written-off assets also getting repaid,” he said.

Indian Bank Unveils Surprise Repayment Boost From Modi Cash Ban

Romesh Sobti

Photographer: Dhiraj Singh/Bloomberg

He was speaking after IndusInd said its net income for the December quarter had climbed 29 percent to 7.51 billion rupees ($110 million). That beat the 7.3 billion-rupee average of analyst estimates compiled by Bloomberg and defied earlier worries that the Nov. 8 ban would hurt IndusInd’s customers in the cash-intensive trucking industry -- concerns that dragged the bank’s shares down as much as 14 percent.

Prime Minister Narendra Modi’s demonetization move had caused speculation on how the policy would impact India’s banks, as millions of Indians lined up at lenders to deposit their now-useless notes or exchange them for new ones. Sobti’s comments provide a glimmer of hope that peers of IndusInd with a big consumer lending book may get a similar boost to asset quality.

“Banks with exposure to sectors in which most of the revenue is generated in cash -- like commercial vehicles, gems and jewelry and small and medium enterprises -- have seen repayment by many delinquent borrowers,” said Siddharth Purohit, an analyst at Angel Broking Ltd. in Mumbai. “They have used the money which has become non-legal tender post the cash ban to repay or prepay, giving a benign push to asset quality.”

Government data shows that about 800 billion rupees of loans had been repaid in cash after the ban, the Economic Times newspaper reported Wednesday, without saying where it got the information from.

State Bank of India Chairman Arundhati Bhattacharya said Jan. 2 that the higher loan repayments will help limit slippages in the lender’s consumer loans, which account for about a quarter of its total advances. SBI is due to report its earnings in February.