IndusInd Bank Q2 slippages a worry but margins offer comfort, stock gains

Though Q2 scorecard was largely in line with the street estimates, analysts underlined elevated slippages and slower overall deposit growth as major drags

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The IndusInd Bank share gained 2 percent in the morning trade on October 19, a day after the private sector lender reported a mixed set of numbers for the July-September quarter.

Though the numbers were largely in line with the street estimates, analysts flagged elevated slippages and slower overall deposit growth as major drags.

The bank’s gross non-performing asset (NPA) at 1.93 percent saw little improvement from 1.94 percent in the previous quarter. Net NPAs were at 0.57 percent against 0.58 percent in Q1FY24.

Higher income and lower provisions translated to 22 percent year-on-year (YoY) growth in Q2 net profit at Rs 2,181 crore, the bank said, which was a tad higher than a Moneycontrol’s poll estimates of Rs 2,128 crore.

Net interest income (NII) grew 18 percent YoY to Rs 5,077 crore, while total provisions (anticipated loss) declined 15 percent to Rs 974 crore, the bank said on October 18.

ALSO READ: IndusInd Bank may cross-sell RCap insurance products, says MD and CEO

Higher costs, elevated slippages worry analysts

Analysts at Morgan Stanley retained the “overweight” call but trimmed the target price to Rs 1,775 from Rs 1,800.

“IndusInd Bank’s Q2 negatives include higher costs and elevated slippages. The reduced target price reflects the lender’s increase in operating expenditures and slower-than-expected deposit growth,” they added.

Global brokerage firm HSBC, too, said the Q2 slippages at Rs 1,465 crore were higher than estimated. It could improve if there was a change in loan mix, operating leverage, and lower credit costs, analysts said.

The management said that slippages in vehicle finance and microfinance could see some improvement from the second half of the current fiscal. “We expect overall slippages to range around Rs 4,800 crore-Rs 5,000 crore in FY24,” they added.

ALSO READ: Bandhan Bank Q2 Results: Net profit up 244% YoY at Rs 721 crore, Provisions higher QoQ, NPAs worsen

Stable margins offer a cushion

At a time when banks are complaining of margin pressure, IndusInd Bank’s Q2 net interest margin (NIM) was steady at 4.29 percent on a sequential basis despite a higher cost of funds.

The company’s cost of funds was up 10 basis points (bps) QoQ to 5.4 percent in Q2FY24.

One basis point is one-hundredth of a percentage point.

“The company’s lower borrowing cost, coupled with effective asset side management, helped to keep NIMs steady during the quarter. We have always said that our NIMs will be range-bound between 4.2-4.3 percent and that is the target we set for ourselves,” the management said.

At 9.31 am, the stock was trading at Rs 1,433.75 on the National Stock Exchange, up a percent from the previous close.

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