IndusInd Bank hits 33-month low on lower-than-expected Q2 loan growth

Shares of IndusInd Bank hit 33-month low of Rs 1,192 apiece, down 3 per cent on Friday, extending its previous day’s 6 per cent decline on the BSE, after the bank reported lower-than-expected loan growth in July-September quarter (Q2FY20).

The stock of the private sector lender slipped 5 per cent from its intra-day high of Rs 1,254 today. It was trading at its lowest level since January 2017.

IndusInd Bank’s advances grew a mere 21 per cent, slowest in over 20 quarters, against expectation 25-30 per cent, on account of conservatism and macro slowdown. The asset quality of the bank worsened sequentially as well as annually. In percentage terms, consolidated gross non-performing assets (GNPAs) was at 2.19 per cent, against 2.15 per cent in Q1FY20 and 1.09 per cent in Q2FY19. Net NPA however, improved sequentially at 1.12 per cent from 1.23 per cent in the previous quarter.

“The miss on advance growth was due to reduced momentum in microfinance institutions or MFI (on account of floods); loan against property (LAP) and small medium enterprises (SME), on account of higher competition and unfavorable risk reward metric; weak sentiment, and absence of demand in corporate (a large recovery and sale to asset reconstruction company or ARC may be a one off) and autos,” analysts at Dolat Capital said in a results update.

Looking ahead, analysts at Reliance Securities expect moderation in loan growth and risk of higher credit cost to continue to weigh on IndusInd Bank’s valuation, while concerns over the management transition could also limit any meaningful upside.

“While superior margin and healthy fee-based income profile continue to aid IndusInd Bank’s return ratios, asset quality surprises can’t be ruled out given the concentrated corporate book. This, along with concerns over management transition and lower growth expectations could be a drag on valuations, undermining the premium valuation the bank attracted in the past,” the brokerage firm said in a result update with ‘hold’ rating on the stock.