IndusInd Bank Q3- Continued Utilisation Of Contingent Provisions Masks True Credit Cost Figure: Yes Securities

Yes Securities Report

IndusInd Bank Ltd. reported annualised credit cost for nine months-FY24 is ~125 basis points whereas the underlying credit cost is higher at ~151 bps and breaches guidance:

Provisions for the quarter were Rs 9.34 billion, down by -4.1% QoQ and -12.3% YoY, translating to an annualised credit cost of 119 bps. Contingent provision buffer has declined from Rs 15.2 billion to Rs 13 billion during the quarter.

The cumulative rundown of contingent provision over nine months-FY24 has amounted to Rs 6 billion.

Slippages were elevated due to slippages in the vehicle finance book, which was due to adverse weather conditions with floods in south India and fog in north India.

Gross slippage ratio for the vehicle finance book was higher at 0.73% in Q3 versus 0.64% in Q2 on non-annualised basis.

Gross slippage ratio for the microfinance book was sticky at 0.55% in Q3 versus 0.57% in Q2 on non-annualised basis.

Deposits growth lagged loan growth, margin was stable while opex rose faster:

Wholesale deposits have been let go of, with share of credit-deposit declining from 3% to 2%. On the loan to deposit ratio front, management stated that the bank is within the guided range of 86-90%, which is in line with the rest of the industry and they have not received any nudge from the regulator.

The employee count rose 5% QoQ whereas 97 branches were added during the quarter, taking the overall branch count to 2828.

Margin would remain in a range of 4.2-4.3% till the goal of deposit retailisation is achieved after which there could be scope for rise.

We maintain less-than-bullish ‘Add’ rating on IndusInd Bank with a revised price target of Rs 1925:

We value the bank at 2.1 times FY25 price/book value for an FY24E/25E/26E return on equity profile of 15.6%/14.9%/15.2%.

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