IL&FS dented IndusInd Bank's bottom line for September quarter

The bank had to set aside Rs 275 crore as "contingent provisions" towards its as yet unrevealed total exposure, even as the asset is classified as "standard" because of regular payback of loan commitments.

Exposures to infra financier IL&FS group dented IndusInd Bank's bottom line for the September quarter, limiting the private sector lender's profit growth to 4.5 per cent at Rs 920 crore for the period.

The bank had to set aside Rs 275 crore as "contingent provisions" towards its as yet unrevealed total exposure, even as the asset is classified as "standard" because of regular payback of loan commitments. "This is a prudential and pre-emptive provision for a standard asset.

There is a lot of speculation in the market about this borrower (IL&FS)," the bank's managing director and chief executive officer, Ronmesh Sobti, told reporters here. He added that this is a "contingent provision", which means it can be reversed if IL&FS keeps meeting its loan obligations and added that it is secured against cash flows of the company.

Sobti, however, did not reveal the total exposure and also declined to state the percentage level of provisions which may lead one to the overall exposure. IndusInd Bank's exposure to the IL&FS group is to the holding company, a few subsidiaries, and also to a special purpose vehicle, which may be the first one to be divested, he said.

The IL&FS group has borrowed over Rs 57,000 crore from the banking system. The group has been in financial troubles for over two months and has defaulted on multiple debt repayment obligations till date. The government early this month took over the board and replaced it with one headed by banker Uday Kotak. In wake of concerns over potential asset-liability mismatches, the bank has done a review of its loan exposures to the NBFC sector and has been satisfied with its portfolio, Sobti said, stressing that it will continue lending to the non-bank lenders.

He, however, said there have been instances of "irrational pricing" by the NBFCs, hoping that such practices will cease to exist now. When asked if the bank is open to buying NBFC portfolios, he said it is open for deals if there are synergies like vehicle finance or microlending, but will not look at such opportunities for expanding book. Sobti said if not for the IL&FS provision impact, the profit growth would have been 25 per cent.

The bank's core net interest income grew 21 per cent to Rs 2,203 crore, while the core fee income was up 20 per cent to Rs 1,218 crore. It registered a 32 per cent growth in loans and 19 per cent in deposit, he said, pointing out that corporate and retail advances grew the fastest. Sobti said there was a compression in margins because of the cost of funds moving faster than the yield on advances and added that it will take at least a quarter for the loan interest rates to catch up.

Gross non-performing assets (NPA) of the bank rose marginally to 1.09 per cent during the quarter, from 1.08 per cent in the same period last year. Provisioning of the bank rose to Rs 590.27 crore during the quarter, from Rs 293.75 crore in the year-ago period. The lender expects at least one more interest hike of 0.25 per cent from the RBI by the end of the fiscal, he added. Its scrip closed 1.48 per cent down at Rs 1,628.85 a piece on the BSE Monday, against 0.38 per cent gains on the benchmark.

(With inputs from agencies.)