IL&FS crisis impact: IndusInd Bank stock falls 8.52%, hits 15-month low

IndusInd Bank’s stocks fell 8.52 per cent on the BSE over its previous close, after the private lender reported low profit growth in September. The primary reason for its profit growing slowly was provisions for exposure to debt-ridden Infrastructure Leasing & Financial Services (IL&FS).

While the bank’s operating parameters remain strong, the exposure to IL&FS and its potential impact on further provisioning and asset quality has spooked the market.

IndusInd Bank made a contingent provision of Rs 2.75 billion against its exposure to the IL&FS group. While the bank said its exposure was against certain cash flows, the uncertainty revolving the infrastructure development companies have left investors with little comfort.

“Considering 20-25 per cent provisions for stressed exposures, the bank’s exposures could be in the proximity of Rs 11-14 billion for the group,” said a report by Elara Capital.

Analysts said the September provisioning was the start of IndusInd Bank’s IL&FS saga.

Suresh Ganapathy, head of financial sector research at Macquarie, said investors felt the current provisioning was only for the holding company of the IL&FS group. “This effectively means the overall exposure to the IL&FS group, including funding for special purpose vehicles, could be much higher,” he added.

Analysts also said the bank’s margins could come under pressure, especially in a rising interest rate environment and higher credit cost on account of IL&FS exposure.

The net interest margin of the bank was at a 15-quarter low of 384 basis points in September, since there was a lack of transmission of higher funding cost to the lenders, said a report by Elara Capital. “This exists largely as a result of the fact that a large part of the bank’s book is fixed rate, while the liability part is linked to volatility in interest rates,” it added.

The bank’s upcoming acquisition of IL&FS Securities Services (ISSL), a capital markets subsidiary of IL&FS, has also raised concerns of investors.

“Icra on October 19 placed rating of IL&FS Securities under watch,” said Ganapathy.

He added that the increase in gems and jewellery and commercial real-estate exposure this quarter did not go down well with the investors.