IndusInd Bank lost over Rs 9,000 crore market cap in 2 days; stock down 10%

The management has indicated that the bank's exposure of 1.9 per cent to stressed groups is expected to come down in the coming quarters.

IndusInd Bank has lost an over Rs 9,000 crore market capitalisation (market-cap) in the past two trading days after foreign brokerage UBS downgraded the stock to ‘sell’ from ‘neutral’ on expectations of higher credit costs. Shares of the private sector lender were down 5 per cent at Rs 1,412 on Friday, falling 10 per cent in two days.

At 01:45 pm, IndusInd Bank market cap stood at Rs 85,461 crore. It has lost Rs 9,094 crore since Wednesday (June 12) when its market cap was Rs 94,555 crore, the BSE data shows.

The brokerage firm lowered its price target to Rs 1,400, drawing inference from the lending cost of the bank, which it believes, could rise to 150 basis points (bps) as against the lender's guidance of 65 bps in FY20.

"The private lender’s lending to non-investment grade (NIG) rated companies is relatively higher than earlier expectations. Moreover, retail deposits, as a percentage of external liabilities for the bank, is around 20 per cent which is the lowest among the banks in our coverage. It is a structural issue and often manifests in credit quality surprises," the brokerage firm said in its report.

The management indicated that the bank’s exposure of 1.9 per cent to stressed groups is expected to come down in the coming quarters. They also indicated that exposure to stressed housing finance companies (HFCs) included in the above limit is not material. The management is of the opinion that the current stress in the non-banking financial space, especially HFCs is more of a ‘liquidity’ issue than a ‘solvency’ issue.

“Management indicated that while some small fringe players (IndusInd Bank does not have any exposure) may be impacted, larger players (barring the stressed HFCs) may see limited impact due to large liquidity buffer maintained by these entities, slowdown in disbursements and better asset quality (at least on the retail lending side),” analysts at JM Financial said in a management meet update dated June 11, 2019.

“Exposure to troublesome companies accounts for 1.9 per cent of the total loans. There is large possibility of these assets turning into NPAs in FY20. In addition to this, retirement of Romesh Sobti could add to the woes. In this backdrop, expansion in valuation multiples looks limited,” analysts at LKP Securities said in a company update.