IndusInd Bank Q4 Results Review - Utilisation Of Contingency Provisions Remains A Concern: Systematix

Systematix Research Report

IndusInd Bank Ltd. reported Q4 FY24 profit after tax of Rs 23.5 billion which was largely in-line with estimates. However, the bank again dipped into contingent provision buffer by Rs 3 billion which is now reduced to 29 bps (% of net advances) versus 66 bps as of March 2023. Excluding the benefit from this, reported profit after tax would have been 5% lower versus our expectations.

Other key highlights were:

1. Net Advances growth of 5% QoQ, 18% YoY was led by strong growth in retail (6% QoQ, 23% YoY) with retail mix improving by to 55.7% (+200 bps in FY24). This is in line with the bank’s Planning Cycle 6 for FY23- 26, of 18-23% loan growth and retail loan mix of 55-60%.

2. Deposit growth of 4.3% QoQ, 14% YoY was also broadly in-line with our estimates. Going forward, the bank targets liability growth of 16-18% with higher share of re-finance in the funding mix due to tight market liquidity. Advances growth is likely to be in-line with liability growth given constraints on CDR 3) Computed net interest margin at 4.54% declined -11 bps QoQ as cost of funds increased by +28 bps QoQ while yield on funds increased by +14 bps QoQ. Funding cost were impacted by higher borrowings (+18% QoQ) which were done to offset the impact of reduction in Rs 40 billion of individual retail deposits on exit of a large fintech partner. FY25 NIM to be in the range of 4.2-4.3% (versus 4.26% reported NIM in Q4.

3. CIR increased to 49% (+91 bps QoQ) due to lower total income and higher branch additions. However, opex/average assets remained largely stable qoq at 3.1%.

4. Reported Credit costs declined to 111 bps (-8 bps QoQ). However, the company again dipped into the contingent provision buffer by Rs 3 billion. Excluding this, credit costs would have been 143 bps. Outstanding contingent buffer is now reduced to 29 bps (% of net advances) versus 66 bps as of March 2023,

5. FY25 return on asset guidance of 1.8-2.2% versus FY24 RoA of 1.84%.

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