IndusInd Bank conducted conference call on 18 July 2023 to discuss its financial results for the quarter ended June 2023. Sumant Kathpalia, MD&CEO of the bank addressed the call:

Highlights:

The bank maintained healthy loan growth of 22% yoy and 4% qoq driven equally by consumer and corporate businesses. The bank is seeing loan growth momentum across segments.

Vehicle business maintained 21% growth, microfinance loan growth improved to 14% yoy. Other retail growth remains strong at 27%.

The retail deposit growth accelerated to 21% from 19% in previous quarter. Share of retail deposits improved to 43.4% from 42.6% in previous quarter.

Savings Account book too grew by 6% qoq reversing the attrition trend for the past few quarters. Overall the bank achieved total deposit growth of 15% yoy and 3% qoq driven by granular retail growth.

Affluent deposits grew to Rs 44400 crore up 22% yoy. NRI deposits grew to Rs 37200 crore up 39% yoy.

The bank continues to invest in franchise both in physical as well as digital distribution scaling up presence in new products and customer segments.

Loan book under merchant acquiring business via BFIL grown 89% yoy to Rs 4229 crore. Home loans pilot has reached Rs 665 crore. The bank has soft launched digital platform “Indie” and open for public access.

The bank has hired around 12,600 employees in distribution over last 4 quarters. This is reflected in opex growth of 24% yoy and 6% qoq.

Asset quality has continued to improve in Q1FY24. The gross slippages reduced from Rs 1603 crore to Rs 1376 crore qoq. Restructured book too reduced by Rs 475 crore from 0.84% to 0.66% qoq.

NNPA is at 0.58% with provision coverage ratio stable at 71%.

The contingent provisions are at Rs 1700 crore with total loan related provisions at 121% of GNPAs.

The credit cost has reduced to 33 bps from 36 bps qoq.

Sustaining profitability of the franchise, the bank has improved Net Interest Margin by 1 bps qoq and 8 bps yoy to 4.29% in Q1FY24 with effective balance sheet management. The bank expects to maintain NIMs at 4.2-4.3%

The bank expects the cost of deposits to peak in Q2FY24 and reduce by 10 bps by end Q4FY2024.

The bank expects to end the year with 45% cost to income and aims to reduce to 40-42% in 3 years

The bank expects the ECL provision requirement of 1-1.2%,which would be amortized over 5 years.

The bank aims to maintain loan mix between retail and corporate at 55-45%.

Client fee income grew by 19% yoy driven by continued retail momentum.

The bank has exhibited steady Improvement in return ratios. Return on Assets was at 1.90% and Return on Equity was at 15.24% for Q1.

Capital Adequacy Ratio remains healthy with CET1 of 16.44% and overall CRAR at 18.40%.

Vehicle Finance

The vehicle finance maintained healthy loan growth of 21% yoy and disbursement growth of 18% yoy driven by segments showing strong disbursements such as commercial vehicles, utility vehicles, cars. Disbursements were muted in tractors and two wheeler segments.

The bank has maintained or improved its market share across all vehicle categories.

The bank has also implemented salesforce loan originating system across all locations for cars & two wheelers. This should further improve efficiency and bring down turnaround time for these segments.

The gross slippages in vehicle improved to 0.77% vs. 1.11% yoy and they are expected to come down as the year progresses.

The restructured book in vehicle finance also reduced from Rs 1475 crore to Rs 1182 crore qoq. The collection efficiency of these customers remains comfortable with bulk of the reduction happening through upgrades and recoveries.

Microfinance

The yoy loan growth in microfinance and merchant acquiring book accelerated to 14% from 11% in previous quarter. The share of non microfinance book increased from 7% to 12% yoy.

The Bharat Financial Inclusion consists of three key segments of Microfinance, Bharat Super Shop and Bharat Money Stores.

The microfinance disbursements were Rs 8406 crore in Q1FY2024, up 12% yoy. New-to-Bank disbursements were up by 19% yoy in terms of number of borrowers. The MFI book moved up 9% to Rs 31981 crore. Active borrower base rose 5% to 78 lakh. New customers added were around 504,000 in Q1FY2024. MFI standard book net collection efficiency was at 99.2% in Q1FY2024.

With strong demand and large pockets of growth available, the bank continued to expand merchant acquiring business under the banner of Bharat Super Shop. Portfolio sourced under this business has grown to Rs 4229 crore, up 89% yoy and 5% qoq, with 6.60 lakh active borrowers. The book continues to report healthy growth along with strong asset quality. The standard book net collection efficiency from this book during Q1 FY24 was 99.2%.

The bank has around 115,000 active Bharat Money Stores providing banking at the doorstep in remote areas. Liability book sourced from customers serviced through BFIL increased by 44% yoy to reach Rs 2108 crore through 1.45 crore accounts. The focus remains to be the banker of choice of customer segment in Bharat.

The MFI gross slippages in Q1FY2024 reduced to Rs 369 crore as compared to Rs 599 crore in Q4FY23. The standard 30 DPD loan book remains stable at 1.1% of loans.

The bank expect disbursements from microfinance to pick up as the bank progress the year. The bank is targeting 18-20% loan growth in the microfinance segment.

The bank continue to work on the diversification initiatives and becoming a micro-banker from a micro-financer. The asset quality has improved this quarter and the bank expects the trends to continue in rest of the year as well.

Corporate Bank

The corporate loan book maintained healthy growth trajectory of 4% qoq growth led by growth in small corporates growing 10% qoq. Growth across large and mid-corporates was 3% qoq and 19% yoy end June 2023.

Majority of the corporate loan book is floating rate in nature and the bank was able to pass on increased rates for customers due for reset. The yield in corporate book thus improved 10 bps qoq. Yield increase hereon will be muted with benchmark yields stabilizing or coming down.

The proportion of A and above rated customers has improved from 73% to 76% yoy.

The Gross Slippages in corporate book were only Rs 43 crore for the quarter. The corporate restructured book too remains low at Rs 327 crore.

The bank continues to progress on the granularization of the corporate franchise through small businesses and diversification. Small business as a % is planned to increase from current 10% to 20% of corporate book. Within large & mid corporate verticals, focus is diversification across regions and more acquisition especially in mid corporate segment.

Global Diamond & Jewellery Business

The demand for diamond remained muted with sluggish growth in key consumer markets of US and China. The diamond book thus was up 10% yoy but down 7% qoq with working capital utilization running down.

The slowdown however does not have any impact on asset quality with no clients getting into SMA1 & SMA2 category.

Overall the bank remains comfortable on the diamond portfolio asset quality while the growth will be dependent on the recovery in global economy.

Other Retail Assets

The bank saw another quarter of broad-based growth momentum in other retail loan book growing by 7% qoq and 27% yoy. The secured assets including LAP, business banking grew 5% qoq while unsecured assets of credit cards and personal loans grew by 10% qoq.

The secured asset growth has bounced back with pick up in new to bank acquisition maintaining the momentum. On unsecured side, the Credit card growth was driven by new cards acquisitions & highest ever quarterly spends. Credit Card spends were at Rs 20189 crore growing by 20% yoy.

The bank expects growth momentum in retail business to continue in the current financial year.

Liabilities

The deposits increased 15% yoy and 3% qoq end June 2023. The share of retail deposits improved to 43.4% as the bank progress towards ambition of 45% to 50% by PC-6. Savings Account deposits too showed robust growth of 6% qoq reversing the attrition seen in the last 3 quarters. Overall, CASA was stable qoq at 40%.

Affluent segment deposits grew 22% yoy to Rs 44400 crore in Q1FY2024. Affluent AUM was also up to 68750 crore showing a growth of 17% yoy.

NR deposits grew 39% yoy and 9% qoq to Rs 37200 crore. The bank continues to gain market share in Non Resident segment with market share above 3%.

Contribution of Certificate of Deposits remains low at 3% of deposits.

The bank reduced borrowings in Q1FY2024 by 7% qoq. The borrowings form only 10% of the liabilities and almost all are long term in nature.

The bank continues to carry healthy liquidity position with LCR at 132% and average surplus liquidity at Rs 44000 crore for the quarter.

Overall, the bank remain focused and comfortable towards achieving Retailisation objectives. With continued investment in physical and digital distribution along with maturity of branches will aid retailisation drive going forward.

The bank has 30 branches launch ready currently and another 27 have leases finalized. The bank will aim towards adding 250-300 branches during the course of the year.

Financial performance

The Net Interest Margin was supported by repricing on the asset side as well as active management of the liabilities. The cost of funds as well as yield on assets increased by around 40 bps each in Q1FY2024 resulting in stable margin qoq.

The opex growth was driven by employee addition, investment in distribution, technology spends for the new platform launches and preparing for annual appraisal actions.

Asset quality and the provisioning

The Net Security Receipts have reduced from 51 bps to 44 bps. The bank made additional provisions of Rs 129 crore towards the SR book in Q1FY2024.

Overall, the GNPAs for the bank was at 1.94% and Net NPAs stable at 0.58%. The bank has maintained provision coverage ratio of 71%.

The contingent provisions excluding specific provisions are at 1,700 crore.

Total slippages from the restructured book in the last 5 quarters were at Rs 2324 crore.

Total loan related provisions are at 2.4% of loans or 121% of the GNPAs.

SMA1 and SMA2 book was at 4 bps and 19 bps respectively.

CRAR including profits remains healthy at 18.40%.

Return on Assets was at 1.9% and Return on Equity at 15.24%.

The gross slippages in vehicle improved to 0.77% vs. 1.11% yoy and they are expected to come down as the year progresses. The restructured book in vehicle finance also reduced from Rs 1475 crore to Rs 1182 crore qoq. The collection efficiency of these customers remains comfortable with bulk of the reduction happening through upgrades and recoveries.

MFI standard book net collection efficiency was at 99.2% in Q1FY2024.