IndusInd Bank surges 14% in two days as asset quality improves in Q3

Shares of IndusInd Bank rallied 8 per cent to Rs 914 on the BSE in Monday's session, up 14 per cent in the past two trading days, after the bank posted a decent set of October-December quarter (Q3FY21) numbers with a 25 per cent quarter-on-quarter (QoQ) growth in net profit at Rs 830 crore, aided by improvement in core operating performance and lower provisions.

Net interest income (NII) increased 10.8 per cent year on year (YoY) and 3.9 per cent QoQ to Rs 3,406 crore. Net interest margin (NIM) stood at 4.12 per cent for the quarter ended December 2020. Net non-performing assets (NPA) improved to 0.22 per cent as at Q3FY21 from 0.52 per cent a quarter ago, well provided for with provision coverage ratio (PCR) at 87 per cent. "Pro forma net NPA, considering NPA not recognized due to Supreme Court’s order, stood at 0.70 per cent and pro forma PCR at 77 per cent," IndusInd Bank said in press release.

The bank further said the growth momentum is getting traction and the disbursements in the vehicle finance and microfinance segments are near pre-Covid levels. "In order to take care of potential stress in asset quality that may play out in the ensuing quarters, the bank has continued to strengthen the balance sheet with increased provision buffers. The bank was highly liquid during the quarter," it added.

Meanwhile, the private lender is looking to grow its loan book by 15-18 per cent YoY for the next two financial years under its fifth planning cycle. This coincides with a gradual recovery after the Covid-19 pandemic caused severe economic disruption. The management said it now looks forward to a more secular growth profile going forward.

“The management is geared to pedal growth ahead with a focus on certain segments. Thus, we expect business momentum to pick from here on with operational parameters expected to show improvement. We believe asset quality behaviors need more assessment in the next quarter. However, improving collection efficiency and ample provision buffer is expected to arrest volatility in earnings,” analysts at ICICI Securities said in result update.

“IndusInd Bank reported a strong quarter with profit after tax beat aided by an improving business environment and asset quality outlook. Loan growth is showing signs of revival in both Wholesale and Retail, while the deposit franchise is also improving steadily - enabling moderation in funding costs. IIB has reported an improvement in CE in both the Vehicle and MFI portfolios, while the restructuring book is under control. The bank has reported a strong improvement in asset quality, with one of the highest proforma coverages -  this assuages the concerns around asset quality in recent quarters,” the brokerage firm Motilal Oswal Financial Services said.