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.
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