IndusInd Bank’s posted a consolidated net profit of ₹2,301 crore for Q3 FY24, higher by 17 per cent on year and 5 per cent on quarter led by strong loan growth and stable margins. Consolidated results include the earnings for wholly-owned MFI subsidiary Bharat Financial Inclusion.

• Also read: IndusInd Bank ties up with EazyDiner to launch credit card

NII for the quarter grew 18 per cent y-o-y and 4 per cent q-o-q to ₹5,296 crore. Net Interest Margin (NIM) was at 4.29 per cent, flat from a quarter ago and slightly better than 4.27 per cent a year ago.

In the earnings call, MD and CEO Sumant Kathpalia said that the bank has the ability to maintain margins is the consistent range of 4.2-4.3 per cent going forward as well, led by the shift in the loan portfolio towards retail assets, and the lender’s ability to command appropriate pricing in segments such as microfinance, and retail and non-retail vehicle loans.

Cost to income rose 354 bps on year and 56 bps on quarter to 47.44 per cent. Kathpalia said that while the ratio is elevated, the bank is investing for growth and that the ratio should start stabilising after 1-2 quarters.

Balance sheet growth

Advances for the bank rose 20 per cent on year in Q3 to ₹3.3 lakh crore, led by 24 per cent growth in retail advances on the back of momentum in vehicle finance, microfinance and consumer segments and the high rate of customer acquisition and branch expansion.

The bank was selective in corporate loans, which grew 15 per cent, with a focus on mid and small corporates. On concerns regarding unsecured lending, Kathpalia said that the bank will maintain the share of unsecured loans at 5 per cent of the portfolio. He added that overall loan portfolio should grow 18-22 per cent, vehicle finance at 20-22 per cent, merchant acquiring business at 25-30 per cent, microfinance at 18-20 per cent and the consumer business at around 30 per cent for FY24 and FY25.

The bank would prefer to maintain the product mix at 55-56 per cent retail and 44-45 per cent corporate, he said, adding that the credit deposit (CD) ratio will continue to be around 86-90 per cent, in-line with other leading banks.

Deposits of the bank grew 13 per cent y-o-y to ₹3.7 lakh crore. CASA deposits were at ₹1.5 lakh crore, comprising 38 per cent of total deposits. Retail deposits grew 5 per cent sequentially, with the share of retail deposits rising by about 1 per cent.

“Being in an elevated rate environment for 18-20 months, we are now in the last stage of deposit repricing and assume a stable rate environment,” Kathpalia said adding that the deposit pressure should start easing with easing interest rates and deposit growth is expected to sustain at 14-16 per cent.

“There is stabilisation of interest rates and repricing of deposits has started reflecting. Our increase in cost of deposits in Q3 is 9 bps and this will get flatter. We should see flattening of the curve from Q1 FY25.” He added that IndusInd Bank does not want to compromise on granularisation of deposits, and thus will continue to offer competitive deposit rates and “do whatever is required” with the aim of growing retail deposits faster than loan growth.

Asset quality

Slippages for the quarter were ₹1,765 crore, of which ₹1,453 crore were from consumer loans and ₹312 crore from corporate loans. Vehicle finance slippages were up sequentially, which Kathpalia attributed to the monsoon and floods in South India and fog-related incidents in North India. The bank is already seeing recovery in this portfolio and credit cost for the portfolio should ease from 1.05 per cent to 1 per cent.

Gross NPA ratio of the bank was at 1.92 per cent at the end of December, better than 1.93 per cent in the previous quarter. Net NPA ratio at 0.57 per cent was flat compared with the year ago period.

Kathpalia said that while the asset quality is better, it has potential for further improvement. This will also help improve the bank’s credit cost which it is aiming to bring down to 100-110 bps in FY25. Credit cost for the quarter was 119 bps and is expected to be at 120 bps for FY24.

Benefits from better margins, cost to income and lower credit cost will also come through in the next few quarters and help the bank further improve its return ratios, Kathpalia said. For the December quarter, return on equity (RoE) was 15.45 per cent and return on assets (RoA) was 1.93 per cent which the bank aims to maintain at around 2 per cent.