Some pressure points in IndusInd Bank results

Results season has started with Infosys announcing a better-than-expected set of numbers. While the market focus has been on Infosys and the sector, IndusInd Bank also announced its numbers. The bank's numbers are an indication of what can be expected from banking sector numbers going forward. 

 

IndusInd Bank posted a 30% YoY growth in net profit to Rs 347 crore as compared to market expectation of Rs 333 crore. The bank has managed to maintain net interest margin at 3.65% when compared to its previous quarter. Non-performing asset (NPA) at the net level has increased from 0.22% to 0.31% on a sequential quarter comparison. 

 

Net interest income of the bank increased by 26% but it was a higher 'other income' of Rs 480 crore, 35% growth which helped bottomline growth. Core fee income accounts for Rs 427 crore of this other income. 

 

Advances posted a 24% growth, but importantly corporate advances increase by 34% is a pleasant surprise given the strong focus of private sector banks to retail segment. However, the bank could match only a 10% growth in deposit despite a strong 23% growth in CASA (current account and savings account). In order to meet the shortfall the bank had to resort to heavy borrowing which grew by a whopping 125%. 

 

Deposit growth has been an area of concern for sometime now. This has started to be reflected in banks books from December 2013 quarter, which can be seen in the case of IndusInd Bank. 

 

Another alarming number is the sharp 60% jump in provisioning. Provisioning jumped from Rs 78.68 crore to Rs 126.16 crore which was mainly on account of the bank opting to amortise the depreciation on the Available for Sale (AFS) and Held for Trading (HFT) portfolios. Similar higher levels of provision can be visible in the results of other banks too. Operating profit growth before provision grew by 37% but the sharp rise in provisioning resulted in profit before tax growth slowing down to 32.5%. 

 

Not only did the IndusInd share price fall post announcement of its results, but its performance also affected the prices of other banks in the sector. A similar set of pressure points can be expected in the results of other banks.