Indusind Q4FY17 Concall Summary

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Financial highlights 

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  • Consistent interest margin of 4% for the past three quarters
  • During Planning Cycle 3, firm has doubled its number of branches, client base and the profits as well.
  • Earlier, the bank has showed its competence by achieving the bank’s doubling goal during PC 2 as well
  • Achieved a loan growth of 27% over the cycle
  • CASA ratiohas over-shoot the target of 36% and grew at 43% in Q4
  • SA grew at 57% in Q4
  • Fee growth has exceeded the loan growth
  • Global markets revenue crossed $0.5 billion
  • Operating profit growth of 37%, which is highest among all the quarters for the past 2-3 years
  • Net profit grew at 21% over the quarter and 25% for FY17 and the gap in the operating profit and net profit is due to issuance of unexpected provision of INR 122 crore on a standard loan, whose reversal is expected to happen in quarter 1 again
  • The Bank has achieved a revenue growth of 32%, fueled by the interest income growth of 31% and fee growth of 33%
  • Considering high growth of fee due to high contribution of trading part in quarter four, the bank achieved 29% fee growth excluding the trading part of fee
  • Achieved a credit growth of 28%
  • Net NPA remained at 39 bp and gross NPA fell slightly by 1 bp and hadshowed steady Net and gross NPA with stable provision coverage ratio
  • QoQ growth in FY17 was 6%, 19%, 11% and 15%
  • Improvement on the working capital financing side is due to the increased competitiveness of the bank on the pricing based on tenure due to MCLR regime
  • ROA was affected due to flat profit QoQ
  • The Bank is planning from current 70%-30% ratio of retail vehicle – Non-vehicle loans, to 50%-50% ratio over the next planning cycle
  • Net slippage for the quarter was INR 84 crore
  • Improved restructured advances may signify increase in the NPAs if the restructuring fails
  • In spite of high operational risks involved in Q4, CRAR remained flat at 15.31% and Tier-1 at 14.72%
  • Th distribution fee grew by 74%
  • Current ROE grew at 16%
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 Business updates

  • The Bank’s corporate business grew faster than the retail business due to increased competence on pricing
  • Opened 125 branches over the quarter 

Economic highlights:

  • Fiscal deficit target brought down from 3.4% to 3.2%
  • Impact of RBI policy on market policy lead to change in stand from accommodative to neutral
  • Setting up of Standard Deposit Facility will help in absorbing excess liquidity (Eg- reverse repo has high liquidity) from the market and banks will be given relief on interest payment
  • Rupee appreciated by almost 5.2% in the quarter
  • US fed rate went up
  • Growth forecast of India by IMF is revised from 3.6% to 3.4% 

Banking Industry Highlights:

  • RBI has now allowed banks to amortize for four quarters any losses on the sale to ARC
  • Q4 involves lot of operational risk for every bank in the industry
  • Although certain parts of India have lot of indebtedness due to microfinance loans but now around 95% of the borrowers are consistently being evaluated based on CIBIL scores, so that creditor will know that
  • Microfinance infrastructure in the industry is still developing, even after top 15 players in the industry, the quality goes significantly down in terms of processes and building capacities
  • Farm loan waiver being done in few states during state elections in UP, if spread to microfinance industry as well then it may have a significant impact on the industry’s revenue as a whole
  • Macros are expected to remain stable, which will lead to gentle interest rate regime due to stable inflation regime  

Bank’s highlights:

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  • During PC 2, the bank has doubled its number of branches from 300 to 600 and again during PC 3, bank was successful in doubling its branches from 600 to 1200
  • The bank has its largest sector as gems and jewellery but don’t possess any concentration risk as such
  • The bank showed significant traction of new-to-bank customers post demonetization
  • The bank wrote down heavily on two accounts it sold to an ARC and chose not to amortize it, thus impacting the cost of credit
  • Firm has seen slight improvement in the gross NPA in the retail
  • Over the past few months around March ’17, bank raisedAdditional Tier -1 capital of INR 2000 crore
  • The bank possess 3 million customers in Vehicle Finance,5.5 million customers in Retail Consumer bank and 1.2 million customers in the Microfinance 
  • Indusind is selling 3.6 consumer bank products per customer on an average
  • A lot of money from savings accounts also moving into alternate assets.
  • Branch size will be reduced to half from current 2500 sq. ft in metro to around 1200 sq. ft in the upcoming branches which leads to staff reduction from 23 to 12employees
  • The Company has acquired top position in terms of total number of deals on the debt side
  • Payment products, lending products and saving products, all three over time we are going to become viable.
  • The Company is not much affected by the BS-4 norms for vehicles because all the vehicles sold till march were based on BS-3 norms only
  • But BS-4 norms will impact the bank’s another business of used-vehicle financing in the near term
  • The bank’s loss given default in vehicle portfolio is just 30% over the past 10 years
  • IndAS is affecting the bottom line of the bank by around 4% along with some release from the provisioning norms
  • The bank currently has partnerships with 11 out of top 15 microfinance firms
  • Operating at a cost to income ratio of around 45%
  • The bank is trying to force its way to become more efficient on capital and therefore take lesser risk in the process by leveraging price competence and balancing corporate retail book
  • GST would make the logistics business more efficient resulting into more warehousing and high usage of LCV, with increased capacity of MHCV and HCV, thus gives a positive outlook of the vehicle sales and the bank’s business
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Planning Cycle 4

  • Intend to use “4D” strategy as Digitized to Differentiate, Diversify, and create Domain Leadership so as to double clients, loans and profits
  • Continue to focus on livelihoods loans because livelihood loans have lower delinquency
  • the rebalancing of the loan book:
    • Rebalancing of loan book to achieve 50-50 ratio between corporate and retail bank and 50-50 for vehicle and non-vehicle loans over a period of three years
    • Higher yield retail book tend to support margins and helps in improving the return on risk weighted assets (RORWA)
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  • Rural Banking and Microfinance: 350 out of 1200 branches of banks are in rural areas and the goal is to generate atleast 10% of total profits from these over the cycle
  • Improved focus on the bank’s overall Productivity through set of initiatives
  • Digitization of businesses, especially in the back office to improve the productivity in processes: Goal is to achieve 14% of bank’s profits by 2020 through initiatives in this space
  • Improving the client experience in the real world
  • Improving Internal collaboration and cross sell: Bank sells 3.6 consumer bank product per customer on an average, so now the goal is to get into selling non-banking products like vehicles so as to improve the profitability of the bank as a whole
  • Sustainability: It is not just about environment and social impact but also about governance and regulatory compliance to be fully sustainable
  • Increasing the number of branches to over 2000 and doubling the customer base to over 20 million
  • To become sustainable in rural banking, the main verticals to focus are agri-finance, vehicle finance, micro-finance and branch banking, so as to achieve 10% profit share from rural banking
  • Reducing the cost to income ratio by at least 2% through means of productivity improvement, reduction in customer acquisition costs, decreasing branch cost due to shrinking size and reduction in depreciation of branches and IT assets along with the increase in digitization
  • Would maintain the ROE at 20% from 16% and targeting a stable RORWA of 2.4%

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