After a bumpy second quarter, IndusInd Bank Ltd seems to be firmly back on its historic steady growth path.
The private sector lender reported a net profit of ₹985 crore in the third quarter, far higher than the ₹810.50 crore estimated by a clutch of analysts that Bloomberg surveyed.
Beyond IL&FS, IndusInd Bank treads safely in Q3
The smudge on the bank’s pristine earnings record had come in the September quarter results, wherein the lender had to provide for exposure to the beleaguered infrastructure behemoth Infrastructure Leasing and Financial Services Ltd (IL&FS).
That overhang is still there as IndusInd Bank provided another ₹255 crore towards this exposure. The lender has a total exposure of ₹3,000 crore to the IL&FS group.
IndusInd Bank’s progressive provisioning indicates that the recovery from the IL&FS fiasco is unlikely to be smooth.
Life beyond IL&FS seems to be better off for the lender.
IndusInd Bank’s loan growth continued to be along its historic performance. For the December quarter, the lender’s loan book expanded 35%, with corporate loans growing 34%.
Analysts believe that IndusInd Bank, which has acquired microlender Bharat Financial Inclusion Ltd, would now focus on corporate loans that are margin-friendly, of course without compromising on asset quality. The merger deal entered into three months ago took effect on 1 January.
The quality of IndusInd Bank’s loans continues to be enviable with the gross bad loan ratio remaining around 1.1%.
The lender has also managed to reduce exposure to troubled sectors such as infrastructure and real estate. The credit profile of its corporate book should also instil confidence in investors on incipient stress. A big chunk (14%) of its rated loan portfolio is in the top AAA-rated bracket. Even BBB-rated loans are nearly 13%, but most of these are secured and collateralized.
That said, slippages have jumped in the third quarter. The trouble from IL&FS is still there as well.
The IndusInd Bank stock’s valuations seem to have adjusted to the threat from IL&FS. The stock has lost 14% since mid-August and now trades at a multiple of less than three times its estimated book value for FY20.