Covid-19 impact: Asset quality could come under stress, says IndusInd Bank CEO

IndusInd Bank’s net profit fell 16% y-o-y to Rs 302 crore in the March quarter.

IndusInd Bank could see asset quality deteriorate as a result of the disruption to the economy after the Covid-19 outbreak, MD and CEO Sumant Kathpalia said on Monday. Speaking to the media in his first post-results interaction, Kathpalia indicated the private sector lender’s credit costs could go up to as much as 180 basis points (bps); in a business-as-usual scenario, the lender’s credit cost would have ranged around 120-130 bps, he said.

The projections are based on an internal analysis of the risks posed by the pandemic, assuming a scenario where 50% of the country opens up between the middle or the third week of May, another 25% opens up between the first and second weeks of June and the remaining 25% in the first week of July. The Indusind Bank chief said offering projections on loan growth, at this juncture, would be incorrect. “I somehow think all of us are in this situation of perfecting our balance sheet and making sure our collections are on track and our portfolio remains as an asset. We are not seeing any high delinquencies,” he said.

At the same time, Kathpalia cautioned the lender’s commercial-vehicle (CV) portfolio may continue to slow down at least till Q2FY21 due to the impact of the pandemic and the migration to BS VI norms. “The second half will be better if everything moves up on the commercial-vehicle portfolio. On the microfinance portfolio, it’s a question of when the lockdown is lifted and the rural economy will be the first to come back,” Kathpalia said.

The lender’s gross NPAs stood at 2.45% of gross advances as on March 31, 2020, up from 2.18% on December 31, 2019, while the net NPA ratio stood at 0.91% of net advances as on March 31, 2020, down from 1.05% on December 31, 2019.

The total provisions for the March quarter stood at `2,440 crore, up 56% year-on-year (y-o-y), including floating provisions worth `260 crore to account for the impact on the economy due to Covid. This is over and above `23 crore worth of provisions which are equivalent to the mandated 5% against accounts availing the loan moratorium.
The lender’s provision coverage ratio (PCR) stood at 63.3% at the end of March. The bank has fully provided for its exposure to an infrastructure financing company, understood to be entities from the Infrastructure Leasing & Financial Services (IL&FS) group.

IndusInd Bank’s net profit fell 16% y-o-y to Rs 302 crore in the March quarter as a result of higher provisions. Its net interest income (NII) increased 45% y-o-y to Rs 3,231 crore and net interest margin (NIM) increased 10 bps sequentially to 4.25%.Total advances grew 11% y-o-y to `2.07 lakh crore as on March 31, 2020 and total deposits rose 4% y-o-y to Rs 2.02 lakh crore. Current account savings account (CASA) deposits comprised 40.37% of total deposits as on March 31, 2020.

Kathpalia said the bank’s March retail collections were upwards of 95% across portfolios. The bank has also seen credit flows in the transaction account happening even in the month of April in the MSME section of its client portfolio. “On the corporate portfolio, we reached out to our clients. We are seeing very few clients come back to us. It’s early days and we still have to watch,” Kathpalia said. IndusInd Bank’s shares closed at `407.35 on Monday on the NSE, up 6.33% from their previous close. The results were declared after the close of trade.

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