IndusInd Bank share price: Sharekhan maintains Buy rating with price target of Rs 1000

IndusInd Bank (IIB) posted positive performance for Q3 FY21 with above expectation operational performance and asset quality improving on a sequential basis (reported). Moreover, even on a normalised basis (pro forma basis), the asset quality was well contained. Collections efficiency (CE) has been recovering, and management has shared overall vehicles CE was at 96.9% (was 94.3% in Q2 FY21) and MFI collections were at 94.4% (was 91% in Q2 FY21), which is an encouraging trend. Net interest income for the quarter ended Dec 31, 2020, stood at Rs 3406 cr, up by 11% and +3.9% qoq, and was above expectations.

IndusInd Bank’s Net interest margin for Q3 FY21 was at 4.12%, down 4 bps on qoq. Fee income at Rs 1646 cr was up 6% sequentially, helped by strong growth in core fees (up 31% qoq) as business movement is gradually improving. Net interest margin (NIM) contracted to 4.16% (from 4.28% in Q1 FY21) mainly due to the impact of maintaining higher liquidity, which offset the decline in cost of funds.

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However, IndusInd Bank’s share of CASA deposits was stable at 40% of total deposits. IndusInd Bank saw sharp improvement in reported GNPA/NNPA numbers, which came at 1.74%/0.22%, down 47 bps/30 bps qoq. Even on a pro forma basis, GNPA/ NNPA ratio of the bank at 2.93%/0.70%, respectively, are well contained, and is positive. The bank has strengthened its balance sheet by improving provision coverage ratio to 87% as of Dec 2020.

Provisions and contingencies of IndusInd Bank for Q3 FY21 comprising provision for credit and other losses were Rs 1853 cr provision as compared to Rs 1448 cr in Q2 FY21. Total provisions (comprising specific, floating, general, and standard assets provisions) were 188% of GNPAs and 111% of proforma GNPA and are a cushion in the present environment.

IndusInd bank’s ‘BBB and below-rated’ exposures are well collateralised with five-year average slippage of 0.4%, which will help contain NPAs. IndusInd Bank has strengthened its balance sheet by improving its provision coverage ratio and the recent capital raise has also helped. Going forward, we expect credit cost for FY2022E will be normal and advances growth would be normalised.