IndusInd Bank Q3 Results Review: Needs To Build Provision Buffers, Lower Credit Cost

IndusInd Bank Ltd. needs to build an additional provision buffer for the next quarters after using contingent reserves of Rs 220 crore for the non-performing loan account in December, according to analysts.

This led analysts to tweak their earnings estimates for the coming quarters.

The private bank reported gross slippages of Rs 1,765 crore in the third quarter, primarily due to unseasonal weather conditions in some states. Of this, Rs 1,453 crore came in from the consumer book, and Rs 312 crore was in the corporate portfolio.

However, the bank is working towards the recovery of these loan accounts, said Managing Director and Chief Executive Office Sumant Kathpalia in the post-earnings media call.

"Normalising slippages is a key priority, and contingency buffer creation will depend on incremental stress flow," Citigroup said in a note.

The sale of bad loan accounts worth Rs 310 crore and elevated write-offs worth Rs 710 crore helped the bank keep its gross non-performing loan ratio stable at 1.92%.

Deploying contingent buffers resulted in a credit cost of 1.2% in the reporting quarter.

"While core credit costs were higher, they were deflated by the utilisation of Rs 200 crore from contingent buffers; the bank noted it could not build new buffers," Jefferies said.

Here’s what brokerages have to say about IndusInd Bank's Q3 results:

• Slippages are expected at 2.1% for FY24 and 2.2% for FY25.

• Credit costs were seen at 1.3% for FY24 and 1.2% for FY25.

• Maintain 'buy,' revised earnings down by 2-3%.

• Revised loan growth is down to 17% for FY25 and FY26.

• NII growth of 18% is among the best across our coverage, as it sustained NIM and saw 20% loan growth.

• Improving retail deposit franchises is a key strength.

• We see a 20% net profit CAGR in FY24–26, aided by topline growth and credit cost moderation.

• The bank can build granular deposits by focusing on business-owner clients, non-resident markets, home markets, and wealth products.

• While higher slippages in Q3 were a tad disappointing, we expect trends to normalise in Q4.

• Return on assets was seen at 1.9%, and return on earnings was seen at 16% in FY25.

• Rated 'buy', with a price target of Rs 2,070.

• A rise in slippages is a key risk.

• Pre-provision operating profit growth took a slight hit owing to higher operating expenses.

• See 16–17% YoY growth in NII and PPOP for FY25 and FY26, the highest among peers.

• Maintain 'buy' with the target price increased to Rs 2,000 from Rs 1,750 earlier.

• Unlike its peers, the bank appears to be the most resilient in terms of NIM trajectory due to its higher share of fixed-rate loan books and better pricing power.

• Raised slippage estimates to 1.9% for FY24 and 1.6% for FY25, but is not overly worried due to high-yielding retail loans.

• Credit costs are seen as range-bound at 1.2%.

• Well-positioned for rate cut cycle; steady PPOP growth profile is likely to standout during rate cut cycle.

• Reiterate 'buy' with revised target price of Rs 1,950

• Q3 earnings are driven by healthy loan growth, stable NIM, lower credit cost, higher growth in retail deposits

• Well positioned to beat expectation on NIMs and credit costs in FY25

• Expects bank to deliver higher return on assets of 2% in FY25

• Expects slippages to trim down to Rs 1,100-1,200 crore