IndusInd Bank to go slow on loan growth, focus on retail

IndusInd Bank’s shares ended at Rs 351.15 on the BSE on Tuesday, 14.68% lower than their previous close.

IndusInd Bank will slow down loan growth in order to align the asset and liability sides of its balance sheet and focus on moving to a more granular portfolio, newly-appointed managing director and CEO Sumant Kathpalia told analysts on Monday. IndusInd Bank has lost 10-11% of its deposits, as opposed to the 2% stated earlier, the bank’s management said. Earlier this month, the lender had stated that some state governments had pulled out deposits to the tune of 2% of its base after Yes Bank was brought under moratorium. On Monday, the bank said that the liquidity lost in the form of deposits has been partly recovered in the form of refinance and foreign-currency borrowings.

The bank’s newly appointed CEO said that liabilities would lead the way to asset growth, and not the other way round. “We will be putting greater emphasis on creating a sustainable organisation,” Kathpalia said, adding: “I think large chunky exposures are on their way out of this bank and I don’t think we will do large chunky exposures anymore.” “Yes, we have lost some deposits, but we do tend to toggle between deposits and borrowings. Deposits were coming under stress in the sense that state governments did pull out bulk money. Obviously, you cannot get it back immediately,” the management said, adding that some public-sector enterprises also did not roll over their deposits with the bank. About 15-20% of the outflow has come back in the form of certificates of deposit (CDs), term borrowings as well as deposits.

In a note to its clients dated Tuesday, Credit Suisse said: “Management indicated that they would look to pull back on growth over the next couple of quarters and post that, look to grow at 8-10%, as they look to allow liabilities to drive asset growth.”

The bank also flagged off risks to its asset quality from the prevailing situation of a nationwide lock-down amid the spread of the Covid-19 pandemic. It could see credit costs inching up in the commercial vehicles (CV) portfolio and it will close the year FY20 with a credit cost of 80 basis points (bps), or 0.8%. CV loans account for 12% of IndusInd Bank’s loan book.

Collections in the credit card segment have already been affected in February-March, Kathpalia said, and delinquencies in this category could stand at 0.3-0.4% of the book.

In its Tuesday note, Emkay Global Financial Services said the bank’s near-term performance will depend on its ability to manage disruptions arising out of the Covid-19 spread. “We believe that near-term growth/asset quality pain will weigh in on stock performance, but the new MD’s strategy to focus on retailization of assets/liabilities should help the bank in the long run,” Emkay’s analysts said.

IndusInd Bank’s shares ended at Rs 351.15 on the BSE on Tuesday, 14.68% lower than their previous close.