IndusInd Bank Says Deposits Fell 11% After A State Withdrew Funds

IndusInd Bank Ltd. saw an outflow of about a tenth of its deposits as the Yes Bank Ltd.’s bailout sparked speculation about the stability of smaller private lenders.

Deposits fell 10-11 percent largely because of withdrawal by a state, the management of the private lender said in an investor call without naming the local government. This will lower the low-cost current and savings account ratio but also reduce the bank’s dependence on this category, it said.

The erosion in deposit base is much bigger than 2 percent that the bank disclosed earlier. The speculation about the lender has wiped off more than 72 percent its market value so far this year. Bulk of the slide came after Yes Bank’s rescue and economic disruption from the novel coronavirus outbreak. But there were already concerns about IndusInd’s exposure to stressed sectors and companies.

Wholesale deposits also fell, possibly because of a decline in stock prices, while retail deposits declined the least, the management said. Deposits are more stable and flows have recommenced, it said, adding that the lender has replaced it outflows by inflows through:

• Longer duration refinance/forex borrowings swapped to Indian rupee.
• Bank certifications of deposit and term money borrowings.
• Repo of excess Statutory Liquidity Ration/Non-SLR securities.
• Call money (both interbank borrower and lender as a balancing figure).

Liquidity remains comfortable and the bank hasn’t dipped into other lines of credit such as the marginal standing facility and the daily average liquidity cover ratio stood at 112 percent in March, in line with historical range.

The bank expects the disruption from the Covid-19 pandemic to last three months. Here’s how the lender expects the outbreak and the central bank’s measures, including moratorium on repayment of term loans, to affect it:

Business Banking (6% Of Total Loans)

• Less than 8 percent portfolio in impacted sectors like retail, tour travel, etc.
• Negligible capital market exposure.
• Creating a separate emergency line of credit for business banking customers
• Proven track record during earlier GST and demonetisation shocks.

Loan Against Property (5%)

• Less than 5 percent portfolio in impacted sectors like retail, tour travel and entertainment.
• Portfolio granular, secured and distributed.

Microfinance

• No disbursements.
• History shows strong collections on resumption: 98 percent after Kerala floods and 96 percent after demonetisation.

Cards And Personal Loans (5%)

• Some increase in delinquency likely.
• Moratorium applies.
• Comfortable on this portfolio as most account holders hold only one account.
• Portfolio resumes normalcy soon after situation stabilises.

Commercial Vehicles (12%)

• Experienced clients which will be able to withstand short term downturn.
• Three-months moratorium to benefit.
• Bounces back rapidly from disruption as fully linked to economy.

Passenger Vehicles And Two-Wheelers (6%)

• Negligible Covid in rural and semi-urban regions; loan moratorium to benefit.

Gems & Jewellery (3%)

• Negligible impact as on date on portfolio with no special mention accounts; expects no bad loans in this category.
• Realisation of export bills is continuing till date.
• Lockdown of major markets is expected to delay shipments and realisation of already exported goods for payments.
• Expects markets in many parts of the world to open up post May 2020.
• High return on assets business of more than 5 percent.

Real Estate Developer (4%)

• Likely delay in some projects due to lockdown and labour migration.
• Regulatory interventions to help the sector.

NBFCs (3%)

• Clients largely in secured lending space; three-month moratorium to help.
• Some elevation in delinquencies likely if disruption lasts more than three months.

Other Key Highlights

• Credit cost in the fourth quarter of the fiscal ending March will go up to 210 basis points. (It stood at 59 basis points in the nine months ended December and the bank forecast 60-70 basis points for FY21)
• Provisioning coverage ratio will increase more than 60 percent.
• Unsecured portfolio may see delinquencies rise by 30-40 basis points.
• Keeping high capital threshold. (15% threshold)
• Expects moderate asset growth of 8-12 percent in April-June.