IndusInd Bank Shares Slide Sharply As Weak Earnings Prompt Correction

Private sector lender IndusInd Bank saw its shares drop in trade on Friday, after it reported a weaker-than-expected set of numbers. At 1:08 p.m. the IndusInd Bank stock was trading at Rs 1,044.80 per share, down 18.3% from its previous close.

The lender's net profit for the July-September quarter fell nearly 40% year-on-year to Rs 1,325 crore. Analysts tracked by Bloomberg had estimated the net profit at Rs 2,214 crore.

The fall was largely owing to a sharp rise in provisions, which were up 87% year-on-year and stood at Rs 1,820 crore. IndusInd Bank also set aside Rs 525 crore worth contingency provisions during the quarter, citing uncertain macroeconomic environment.

What the market was likely unhappy with was the rise in delinquencies the bank had seen in the microfinance portfolio. During the quarter, bad loan additions from the microfinance portfolio stood at Rs 2,259 crore, compared with Rs 1,988 crore in June.

Most of the stress for IndusInd Bank came from portfolios in Bihar, Odisha, Maharashtra. The bank highlighted that it would remain cautiously optimistic about the microfinance portfolio, however, growth should pick up in the latter half of the year.

Alongside the higher slippages during the quarter, IndusInd Bank also slowed down its unsecured lending portfolio and pushed up retail deposit growth, which affected its margin.

"Yields on retail advances plunged 28 bps QoQ, led by lower MFI disbursals, 150 bps fall in share of higher yielding MFI book, interest reversals and LDR moderation," Citi Research said in its report on Friday.

Net interest margin for the bank dropped 17 basis points quarter-on-quarter to 4.07%.

Total deposits for the bank stood at Rs 4.12 lakh crore, up 15% year-on-year. Total advances were up 13% from last year to Rs 3.57 lakh crore.

According to Sumant Kathpalia, managing director and chief executive officer of IndusInd Bank, the lender would likely catch up on any shortfall in growth during the second half of the financial year. Analysts believe that the bank is unlikely to achieve its own growth estimates.

"...Given the slower loan growth in 1H, the bank would not be able to meet the 18%-22% growth guidance for the year," analysts at Bernstein Research said in a report.