IndusInd Bank posts muted 4.5% Q2 profit growth due to ILFS provisioning

Lender takes a one-time contingent provision hit of Rs 2.75 billion against exposure to IL&FS group; without this provision, its profit would have grown 25%

Private lender IndusInd Bank posted a muted 4.5 per cent year-on-year growth in net profit for the September quarter, hit by a one-time contingent provision of Rs 2.75 billion against exposure to the Infrastructure Leasing & Financial Services (IL&FS) group.

Net profit for the quarter stood at Rs 9.2 billion against Rs 8.8 billion a year ago. Excluding the provision against IL&FS, the bank saw a 25 per cent growth year-on-year.

Net interest income (NII) rose 21 per cent to Rs 22 billion in September 2018 from Rs 18.2 billion in the year-ago quarter. Other income was up 11 per cent to Rs 13.17 billion for quarter ended September.

Provisions and contingencies surged more than two-fold to Rs 5.9 billion in the quarter, from Rs 2.93 billion a year ago. This was mainly on account of the contingent provision against IL&FS of Rs 2.75 billion for the September quarter.

“Our exposure to IL&FS is standard and against specific cash flows. However, a new resolution plan is underway and will be out at the end of the month. Keeping this uncertainty in mind, we have made a contingent provision, which can be clawed back,” said Romesh Sobti, MD & CEO, IndusInd Bank. While the bank’s exposure to IL&FS is 'significant', Sobti said the provision is a “safety measure against a worst-case scenario”.

The bank has received all regulatory approvals for acquiring IL&FS Securities Services Ltd (ISSL), a capital markets subsidiary of IL&FS. The bank also met with the new IL&FS board and said both sides are keen on the deal. Its merger with Bharat Financial Inclusion would take at least two more months to be completed.

The bank’s asset quality remained stable. The gross non-performing asset (GNPA) ratio for the quarter was 1.09 per cent, marginally higher than 1.08 per cent a year ago.  However, it was an improvement over the previous quarter’s GNPA ratio of 1.15 per cent.  

The bank also said it had reviewed its Non Banking Financial Company (NBFC) portfolio and found no reason for concern since its asset-liability book was well balanced. He said that a similar exercise will be carried out by other banks and the pace of lending of NBFCs will moderate and prices will rationalise.

Net Interest Margin (NIM) stood at 3.88 per cent on September 2018 as against four per cent in the corresponding period of the previous year.

CASA (Current Accounts-Savings Accounts) Ratio improved to 44 per cent against 42 per cent and savings deposits grew 27 per cent to Rs 511 billion as on September 30, 2018.

Advances were up 32 per cent at Rs 1,631.44 billion on September 2018, from Rs 1,231.81 billion a year ago.

Deposits as on September 30, 2018 were Rs 1,682.19 billion as compared to Rs 1,414.41 billion in the corresponding period of the previous year, up 19 per cent.

The bank’s stock closed at RS 1,626.85 on BSE, down by 1.48 per cent from previous close.