The IndusInd Bank
stock, which is up 24 per cent in the last one year, is one of the few private sector bank stocks seeing high demand from investors.
That’s why, the Street could not easily digest the minor margin disappointment in the June 2018 quarter, despite an in-line and sturdy overall performance.
The stock fell by a per cent post results announcement, even as the BSE Bankex and BSE Sensex were up 0.58 per cent and 0.85 per cent, respectively.
No doubt, the bank’s overall performance was strong with loans growing 29 per cent, net interest income (NII, the difference between interest earned and interest expensed), and net profit up 20 per cent and 24 per cent respectively, compared to the same period last year.
However, the bank reported a fall in net interest margin (NIM) to 3.92 per cent for the third consecutive quarter. Although the decline was a marginal five basis points on a sequential basis, NIM was the lowest in the last 10 quarters at least.
What mainly led to the further downtick in NIM this time is the high cost of funds. IndusInd’s cost of deposits and funds rose 22-35 basis points sequentially, against a meagre seven basis points rise in yields, due to the lag effect of a rise in deposit and marginal cost-based lending rate (MCLR) rate. Stiff competition is also pushing up cost of deposits.
“With an aim to improve the term deposit (rate) trend, banks are locking high deposit rates in advance during the initial stage of the rising interest rate cycle to remain competitive going ahead,” according to Manish Oswal, analyst at Nirmal Bang.
Secondly, higher corporate loans as compared to retail ones, confining overall yields on advances, also impacted NIM. This is because, corporate advances, 60 per cent of the loan book, are less profitable (loan yields of 9.16 per cent), compared to retail loans with loan yields of 13.91 per cent.
Nevertheless, there is some comfort as the management has guided for NIMs in the range of 3.9 -4 per cent going ahead.
Analysts, too, do not see this as a major concern, since most performance parameters remain intact.
Even asset quality, with gross non-performing loans at 1.15 per cent, was better than 1.17 per cent in the March 2018 quarter.
“Despite the marginal fall, the reported NIM is satisfactory. With good asset quality, strong expected loan growth with the acquisition of Bharat Financial and foray into capital market with IL&FS, earnings potential of IndusInd looks strong,” says Lalitabh Srivastawa, assistant vice-president at Sharekhan.