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Analyst Meet / AGM - Analyst Meet

Expects credit cost at 55 bps in FY2019

IndusInd Bank

20-Apr-2018, 01:22
IndusInd Bank conducted an analyst meet on 19 April 2018 to discuss the financial performance for the quarter March 2018 and prospects of the bank. Romesh Sobti - Managing Director and CEO along with his colleagues addressed the call:
Highlights:

The business of the increased 24% to Rs 2.97 lakh crore end March 2018 over March 2017, driven by 28% surge in loan book to Rs 1.45 lakh crore and 20% increase in deposits to Rs 1.52 lakh crore. The bank is well on track to achieve the targets set under planning cycle - 4 for FY2020.
Within the loan book, the bank has exhibited strong 47% yoy and 12% qoq surge in vehicle finance disbursements with 67% yoy and 27% qoq jump in commercial vehicle finance disbursement in Q4FY2018. However, the bank is cautious on LAP segment amid aggressive pricing, while it has slowed down lending in LAP segment.
The bank has also posted robust 30% growth in corporate loan book, driven by refinancing for few NCLT-related cases.
The vehicle finance disbursements have jumped 34% in Q3FY2018, driven by 39% surge in the commercial vehicles finance disbursements, while tractors is showing strong growth.
The bank has posted strong 27% growth in the net profit in Q4FY2018, despite moderation in core fee income and lower trading income. As per the bank, the high base effect impacted the core fee income, while high interest rates and inability to book trading gains after quarter ending fall in bond yields hit the trading income in Q4FY2018.
The bank has continued to maintain stable net interest margins of 3.97% in Q4FY2018. The bank raised its MCLR by 40bp during the quarter. Most of the retail loan book is on fixed rate basis, while 50% of the overall loan book is on MCLR based lending rate system.
The bank has further improved CASA deposits ratio substantially to 44% end March 2018 from 42.9% end December 2017 and 36.9% end March 2017. The cost of saving account deposits has declined by 25 bps in FY2018, while the bank expects it to continue to decline, going forward.
The bank has added 0.6 million saving accounts customers in Q4FY18, taking the total customer base to 11.2 million. The bank aims to raise the customer base to 20 million by 2020.
The bank is focusing strongly on cross-sell opportunities, while currently sales 3.6x product per customer and 5x product per customer in top end category.
Bank aims to achieve balance between retail - corporate loan mix at 50-50 by FY2020 from existing 40-60. Given the strong growth in corporate loan book, the bank expects to achieve at least 45-55 level by FY2020.
The restructured advances book of the bank has further dipped to 5 bps end March 2018 from 14 bps end December 2017. The SMA-2 category loan book of the bank stood at mere 0.13% of the loan book end March 2018.
With regard to accounts referred to NCLT for speedy resolution under IBC, the bank has exposure to Rs 385 crore of loans, while holds 65% provision on these loan. The bank do not expects any further provisions on NCLT related cases, while expects some recovery from the ongoing resolutions.
With regards to exposure to gems and jewelery sector, the bank has exposure mainly to diamond segment with top end clients, and do not deals with jeweler segment facing various issues. The bank has small two digit exposure to Gitanjali loan account, which is a legacy account since 1995. Bank has treated the account as fraud and made required provision, despite the account is standard with other banks.
The bank has consumed 80 bps of capital in Q4FY2018, of which 40bps was due to market risk and operational risk and the balance related to the expansion in loan book.
The credit cost stood at 62 bps for FY2018, while the bank expects to contain credit cost at 55 bps in FY2019.
The bank has reported NPA divergence of Rs 1350 crore for FY2017, of which one large account of Rs 518.5 crore has also appeared in divergence for FY2016 and reappeared now on technical reason, while the account is fully repaid. Net impact of divergence on slippages in Q4FY2018 stood at 186 crore and credit cost at 2 bps.
The bank has sold assets worth Rs 182 crore to Asset Reconstruction Companies (ARCs) in the quarter ended March 2018. The securities receipts of the bank stood at Rs 473 crore (0.3%) end March 2018.
With regard to Bharat Financial Inclusion merger, the bank is awaiting SEBI and NCLT approval, while the integration is expected be completed by July 2018.
For acquisition of the securities arm of IL&FS, SEBI approval is required. The acquisition is expected to be beneficial with the securities company having 20% market share in clearing business.
As per the bank, the operational risk is emerging as a important factor, in the current banking scenario and has necessitated reviewed focus.
With regards to 12 February RBI circular on tightening of NPA norms, the bank sees it as a good stepping stone towards Ind AS implementation and support banks preparing the banks well for it.
As per the bank, the private bank can gain share in banking industry loan book from public sector banks, while a 10% shift in market share would require additional capital of US$ 15-16 billion for private banks.
With regard to banks required to create Investment Fluctuation Reserve, the bank believes that it may have impact on profitability and CET-1 capital ratio.