IndusInd Bank Q1 Results: Net Profit Falls 68%; Board Approves Fund Raise Plan
IndusInd Bank Ltd.’s quarterly profit took a hit as the private lender safeguarded against a possible rise in bad loans on account of the Covid-19 pandemic.
Net profit fell 67.8% year-on-year to Rs 460.6 crore in the quarter ended June, according to an exchange filing. That compares with the Rs 724.9-crore consensus estimate of analysts tracked by Bloomberg.
Its net interest income, or core income, rose 16.4% to Rs 3309.2 crore — higher than the Rs 3081-crore estimate.
Provisions & Asset Quality
IndusInd Bank’s asset quality remained steady during the quarter.
Gross non-performing assets ratio expanded to 2.53% from 2.45%. The net bad loan ratio fell to 0.86% from 0.91% in the preceding three months.
IndusInd Bank has increased its provisions against bad loans to Rs 2258.9 crore to protect its balance sheet against the Covid-19 impact. In the March-ended quarter, the bank had set aside Rs 2440.32 crore in provisions.
In the vehicle finance portfolio, the owner operator segment has not been that badly affected compared to the lease segment, said Sumant Kathpalia, chief executive officer, IndusInd Bank. In the micro-finance portfolio the bank has kept in constant engagement with clients and there has been improvement in collection efficiencies every week, he said.
India’s banking system is shrouded in uncertainty and the threat of increasing bad loans as a result of the moratorium that allows deferment of loans and EMI payments till Aug. 31. According to a stress test conducted by the Reserve Bank of India, the average gross NPA ratio of Indian lenders could escalate to 12.5% in the ongoing financial year under the baseline scenario. If the situation worsens, the ratio could escalate to 14.7% under the very severe stress scenario.
“We did a second stress test in June and a portfolio review on industry trends and economic data and a ground level assessment. The first stress test was done in April based on limited data,” said Kathpalia.
On the basis of the stress test, the bank would need to provide around Rs 1,376 crore against stressed assets, of which Rs 1,203 crore worth of provisions have already been made as of June 30, 2020, he said.
IndusInd Bank recognised an exposure in two entities with an outstanding of Rs 960 crore as fraud in the quarter ended December 2019, and provided in full. In accordance with RBI circular of April 2016, the bank debited Rs 240.22 crore from the profit and loss account and Rs 720.67 crore to the balance in the profit and loss account under ‘reserves and surplus.’
The bank said it charged Rs 240.22 crore to the profit and loss statement during the quarter ended June 30. The balance amount will be reversed to the profit and loss account in the ensuing quarter, it said.
Advances & Deposits
The bank’s total advances grew by 2.35% to over Rs 1.98 lakh crore at the end of June 2020 from Rs 1.93 lakh crore at the end of June 2019.
Deposits rose 5% to over Rs 2.11 lakh crore as of June 2020 from against a little over Rs 2 lakh crore as of June 2019.
The bank remains cautious on how the Covid-19 pandemic will play out and will watch the impact before pressing on the accelerator, Kathpalia said. In particular, the bank will go slow on growing the unsecured loan portfolio, he added.
The bank’s board has approved a proposal to raise Rs. 3,288 crore through a preferential issue of fully paid up 6.275 crore equity shares at a price of Rs 524/- per share.
The bank’s promoters along with a wider set of investors will participate in the issue. Investors participating in the issue include Route One Fund and Route One Offshore, ICICI Prudential Life Insurance Ltd, Tata Investment Corporation Ltd and AIA Company Ltd, which will together contribute Rs 935 crore.
The RBI earlier approved an investment of up to 10% by Route One in IndusInd Bank.
The promoter entities, including Hinduja Capital and IndusInd International, will infuse Rs 792 crore. The promoter entities will be locked in for 3 years, while QIB investors will be locked in for one year.
“The promoters would like to raise their stake to 26% and we have written to the RBI. The promoter had the opportunity to buy shares in the market and they bought in the secondary market. They are coming to participate [in the upcoming equity raise] to hold a stake up to 15%,” Kathpalia said.
According to disclosures on the Bombay Stock Exchange, the banks’ promoters held a 14.41% stake in the bank at the end of June 2020.
Shares of IndusInd Bank rose 4% in trade on Tuesday compared to a 1.47% gain on the BSE Sensex. The results were declared after markets closed.
(Corrects an earlier version that misstated that IndusInd Bank recoginsed a fraud in two entities in Q1FY21. It recognised the fraud in Q3FY20)