Indusind Q1FY18 Concall Summary

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 Financial Highlights

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  • Interest income grew by 31%
  • Core fee grew by 25% with steady cost income ratios
  • Growth in PAT was 26% with INR 837 crore without considering the reversal of INR 122 crore of standard asset provision into profits
  • CAR has improved from 15.31% in last quarter to 16.18% this quarter
  • Loans grew by 24% with 22% in retail growth and 26% in corporate growth and also, deposits grew by 31% for the quarter, thus improving the overall credit-deposit ratio
  • In the retail side, vehicle and non-vehicle grew by 17% and 35% respectively
  • CASA grew by 44% and SA demonstrated a consistent healthy growth of 65%
  • NPA is INR 31 crore with a provision of INR 28 crore
  • Q1 disbursement on the vehicle finance book was INR 5,274 crores, was slightly lower by 4.4% versus INR 5,500 crores in last year
  • Out of total CA of INR 20,000 crore, 50% is retail, 20%-30% is IPO money and remaining is corporate
  • Gross NPA increased from 0.93% to 1.09% due to the movement of two accounts from restructured book to GNPA book, where restructured book fell from 0.37% to 0.17% over the quarter
  • In the microfinance portfolio, the banks consider INR 50 crore as NPA which is expected to come down to INR 20 crore to INR 25 crore over the end of the quarter
  • The bank is expecting to provide INR 10 crores on microfinance
  • Strong growth in SA is attributed to the fact that, the bank is getting strong customer growth of around 90,000 new customers per month and with an improved ticket size of INR 60,000 per account
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Economic Reforms:

  • GST will provide sort of a tax audit trail and lead to improved productivity
  • Reforms are GST and IBC will create a short-term turbulence but possess massive implications to the economy

 Developments in Banking Industry:

  • With the Banking Regulation (Amendment) Ordinance, banks have been advised to make a provision of 50% on the secured portfolio and 100% on the unsecured portfolio as soon as the account gets admitted in the NCLT
  • sector growth continues to be anaemic at 5% to 6%, retail has still got some buoyancy at 14%, but corporate is negative
  • Bond market grew by 20%, and so the growth of the combined sector along with the bond market demonstrated a growth rate of 9%-10%
  • As per the recent guidelines by RBI, banks are supposed to put 50% provision on secured loans and 100% provisions on unsecured loans from Q2 onwards
  • SA part of CASA ratio is more steady and predictable while CA is subjected to volatility and so predictions are not easy

Asset Quality:

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  • Improved risk profile through focus on high quality assets has led to the improved capital ratios
  • The bank’s rating profile has improved with the strategy through short-term working capital loans which are better priced
  • The combination of yields holding up on the asset side of the book and falling cost of deposits are contributing to the net increase in margins
  • The Bank’s strategy about healthy books are positively impacting the capital adequacy and capital consumption of the bank.
  • The bank possess exposure in 3 out of 12 accounts declared defaulted through IBC
  • Exposure to the telecom sector has been reduced to 2.1% this quarter from 3.5% in the last quarter with none of the telecom exposure rated below A rating
  • The bank has increased the standard asset provision in telecom sector from 40 bps to 75 bps, thus taking an impact of INR 8 crores
  • Combined restructured plus GNPA reduced from 130 bps last quarter to 126 bps this quarter
  • Risk weightage has not grown to the same extent as the loan book grew by 3% while the risk weightages grew by 1% due to the shift in rating profile of the corporate book towards AAA and AA+ ratings
  • In order to reduce the share of top 20 depositors in the bank w.r.t. to total deposits, the bank is trying to put a cap of around INR 700 crores, so that any account will not be allowed beyond that
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Provision Coverage:

  • The company normally provides provision of 60% on NPAs
  • Out of INR 122 crore held as provision, INR 70 crore is floating provision, INR 33 crore is the provision on standard asset, INR 10 crore is used to accelerate provisioning in Security Receipts and INR 10 crore is used on microfinance portfolio
  • Due to the given measures, provision coverage ratio exceeded 60%

Growth Prospects:

  • Growth in the Q2 is expected to remain the same, but the bank is expecting double digit growth in Q3 onwards on the Microfinance sector
  • Similar growth is expected till Q2, but expectations for Q3 and Q4 are kept higher because of the expected growth in supply side from vehicle manufacturers
  • Showed a healthy loan growth of 24% despite policy reforms in some sectors and demonetization
  • The Bank is not looking for any acquisitions in the short term and is focused towards development with the organic growth rather than inorganic one
  • CA in the retail part is at INR 7 crore per branch and is expected to show promising growth due to increase in branch network
  • The bank’s M&HCV book grew by about 13% while the vehicle finance book as a whole grew by almost 17% due to slow quarter growth in CV, which was mainly impacted by the supply side issues due to BS IV norms
  • Number of employees at the end of the quarter is 25,413 as compared to 25,612 in the last quarter and is mainly affected by the relocation of employees and reduction of employees per branch to half
  • Although market risk has gone up but returns are steady, because of the SLR book going up and government securities rate going down

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