IndusInd Bank Q1 Results: Lender Swings Back To Profit After One-Off Losses But Poor Asset Quality Weighs

Deterioration in asset quality stemming from micro loans business has weighed on IndusInd Bank's net profit for the quarter ended June. These results come after the derivative accounting episode that rattled investor confidence and led to questions around governance and succession planning.

To be sure, this is the second quarterly result announcement since the issues cropped up.

The private sector bank posted a standalone net profit of Rs 684 crore in the June quarter, as against a loss of Rs 2,236 crore in the preceding quarter. This is in line with the expectations of Rs 653 crore, according to a poll by Bloomberg.

"The bank has delivered Q1 results without any carry over of prior period irregularities, and financial impact of legacy issues is now behind us," Chairman Sunil Mehta said in the post earnings call to analysts.

While there is some respite from the absence of one-off losses seen in the March quarter, but underlying pressures on growth and asset quality still weighed on the bank's performance.

Gross non-performing assets ratio of the bank worsened to 3.64% from 3.13% a quarter ago. Net NPA also rose to 1.12% as of June 30 from 0.95% in January-March.

Microfinance loans continues to be a pain point for the private sector lender, with gross NPAs from this business segment rising to Rs 5,298 crore, up from Rs 4,531 crore in the prior quarter. The bank's microloan book, which forms 8% of its total loan book, fell 8% on quarter to Rs 28,408 crore.

The lender took a cautious stance on microfinance, said Soumitra Sen, head of consumer banking. Sen expects slippages from the MFI to stabilise in the third quarter. Slippages might extend to fourth quarter but legacy problems should be taken care of, he added.

The bank has stopped internal deals in its treasury book and has upgraded its treasury systems to latest version, and will continue to delve deeper to enhance board control over its microfinance subsidiary Bharat Financial Inclusion Limited, Mehta said.

Total fresh additions during the quarter under review was at Rs 2,567 crore, lower than Rs 5,014 crore in January-March. Write-offs was also lower at Rs 664 crore from Rs 1,816 crore.

Meanwhile, upgrades were at Rs 230 crore as compared to Rs 216 crore in the prior quarter. Recoveries came in at Rs 239 crore versus Rs 311 crore in the quarter ago.

On the profitability side, the bank's net interest income increased 52% on-year to Rs 4,640 crore, as against Rs 3,048 crore in the preceding quarter.

Consequently, net interest margin rose to 3.46% from 2.25% in the March quarter as the bank turned back to normalcy from the current financial year.

The lender's chairman also said that the bank reported stable profitability metrics and believe that the financial return metrics are still below potential.

IndusInd Bank Q1 Highlights (Standalone, QoQ)

• Provisions down 28% to Rs 1,738 crore versus Rs 2,417 crore.

• Loan book down 3% to Rs 3.33 lakh crore.

• Deposits down 3% to Rs 3.97 lakh crore.

• Microloan book fell 8% to Rs 28,408 crore.

• Net interest margin at 3.46% versus 2.25%.

The lender's loan book fell by 3% on-quarter to Rs 3.33 lakh crore. Of this, vehicle financing—which forms 29% of the bank's total advances—grew mere 1% on-quarter and 7% on -year to Rs 96,357 crore.

To this, the chairman said that the bank's vehicle and consumer finance businesses have maintained disbursements.

Consumer banking makes 60% of the lender's total loan book and rest 40% constitutes of corporate and commercial banking.

Corporate banking book decreased 8% on-quarter and 16% on-year to Rs 1.32 lakh crore. While it has calibrated loan disbursals on the corporate financing, it is now starting to pick up, Mehta said.

Sen expects slippages from the corporate segment to improve. Overall, the bank remains watchful of region specific weather disruptions but said that diversification should help in sustaining steady momentum, he said.

He also said that the bank's asset quality improved with net slippages falling and expects slippages to remain range bound from here on.

Deposits were also down by 3% on-quarter to Rs 3.97 lakh crore.