IndusInd Bank Q3 Results: Profit Down On Rise In Provisions, Bad Loans

A sharp rise in provisions and bad loans weighed on IndusInd Bank Ltd.'s October–December performance as the lender's consolidated net profit fell nearly 40% to Rs 1,401 crore.

The lender's bottom line was below analysts' expectation of Rs 1,447 crore polled by Bloomberg. This came after its provisions for the quarter surged 80% to Rs 1,744 crore. This has come as the bank provided extra provisions for the stress in the microfinance institution segment.

Net interest income also fell to Rs 5,228 crore from Rs 5,296 crore a year ago. Consequently, the net interest margin was 3.93%, lower than 4.08% a quarter ago.

"We have to wait for the MFI segment to play, and that will happen by Q4. We should be back to 4% or above NIMs by Q1 next year. I think we will start seeing growth in NIMs going forward," Managing Director and Chief Executive Officer Sumanth Kathpalia said in the post-earnings call.

Asset quality of the bank deteriorated, with the gross non-performing assets ratio rising to 2.25% at the end of December, as against 2.11% a quarter ago. The net NPA also increased to 0.68% from 0.64% in the prior quarter.

Of the total slippages during the quarter, MFI loans contributed Rs 695 crore, Kathpalia said.

"We remain cautious on the microfinance segment. While slippages may remain elevated in another quarter, our customers are showing early signs of stability, which can be seen from Q4 onwards," he said.

When asked what gives the confidence to the bank to see normalisation in the MF space from Jan-Mar onwards, Kathpalia said that zero buckets have started normalising and collection efficiency has improved to 99.5%.

As long as the bank is able to manage the 30-90 days past dues bucket, normalisation should come back, and MFI as a business should run on a credit cost of 2.5-3.5%.

However, the ongoing review of a draft ordinance aimed at curbing unlawful loan recovery methods by MFIs in Karnataka has slowed collections, and the concern is that this issue could spread. Kathpalia added that the bank has 1% exposure to this region in terms of MFI loans.

While advances grew 12% year on year to Rs 3.66 lakh crore. Within consumer banking, vehicle financing rose 25% year-on-year to Rs 93,586 crore, followed by non-vehicle financing at 20% year-on-year to Rs 70,503 crore and MFI loans at Rs 32,564, up 9%.

Deposits for the bank rose 11% year on year to Rs 4.09 lakh crore. Current account and savings account deposits comprised 35% of total deposits as of the end of December.