IndusInd Bank Q2 net profit halves as pandemic-related provisions go up

Bogged down by money set aside for possible reverses in asset quality due to the coronavirus pandemic, IndusInd Bank's September quarter net profit halved to Rs 663 crore and the private sector lender hinted of more pain in the offing saying provisions may go up in the future.

Bogged down by money set aside for possible reverses in asset quality due to the coronavirus pandemic, IndusInd Bank's September quarter net profit halved to Rs 663 crore and the private sector lender hinted of more pain in the offing saying provisions may go up in the future. The bank's newly appointed chief executive Sumant Kathpalia on Friday said it has been focusing on balance sheet re-alignment till now to make the book more resilient but will start focusing on the growth opportunities from here on.

He also outrightly denied reports of the bank or its promoters –- the Hindujas –- exploring a merger opportunity with larger rival Kotak Mahindra Bank. On a consolidated basis, the lender's net profit declined to Rs 663.08 crore in the latest September quarter from Rs 1,400.96 crore in the same period a year ago.

For the reporting quarter, its core net interest income grew 13 per cent to Rs 3,278 crore on the back of a 0.06 per cent expansion in Net Interest Margin (NIM) to 4.16 per cent and a 2 per cent loan growth. NIM, however, declined by 0.12 per cent when compared with the preceding quarter. Other income declined to Rs 1,554 crore in the latest September quarter from the year-ago period's Rs 1,727 crore, but was up when compared with the June quarter's Rs 1,520 crore, leading the bank management to say that economic activity is gradually picking up.

The overall provisions came at Rs 1,964 crore for the latest quarter as against Rs 737 crore in the year-ago period. Kathpalia said it has set aside Rs 952 crore on account of the likely impact due to COVID-19, taking the overall excess provision due to the pandemic to Rs 2,155 crore. On a standalone basis, the bank posted over 53 per cent decline in standalone net profit at Rs 647.04 crore in the September quarter. In the year-ago period, the same stood at Rs 1,383.37 crore.

There is a likelihood that the provisions may go up in the future as there will be another round of setting aside money, Kathpalia said. He said only a few borrowers have come forward with a request for loan restructuring and declined to give an outlook on it. He also declined to share the quantum of assets which were under moratorium when the scheme ended on August 31.

Kathpalia said loan collections have reached over 94.7 per cent as of September, and are expected to inch up further in the third quarter. The balance will be assets which will be restructured or slip into Non-Performing Assets (NPAs), he said. The slippages came at Rs 399 crore for the quarter and the consumer loans alone accounted for Rs 386 crore while the corporate segment was only Rs 13 crore, the bank said.

Kathpalia attributed the high NPAs in the consumer segment to micro-loans. The additions to gross NPAs would have been higher by Rs 280 crore but for the standstill in asset recognition announced by Supreme Court, he noted. As a proportion of total assets, the GNPA ratio came at 2.21 per cent as against 2.19 per cent in the year-ago period. He said the earlier guidance on the COVID-19 impacting the GNPA by 0.92 per cent may need a review because of the scheme of restructuring coming in.

"In April-September, our focus was on balance sheet re-alignment. Having achieved that to a large extent, the focus in October-March will be on scaling up of the business," he said. Besides microfinance and unsecured loans, the bank will be keen to lend to all other segments, he said, adding that it is cautiously optimistic about the future.

In microfinance, the bank will be more conscious about the geographies it chooses to operate in and also avoid lending to over-leveraged borrowers, he said. From a capital perspective, the over Rs 3,500 crore-infusion recently took the overall capital adequacy to 16.55 per cent as of end of September as against 15.16 per cent in June.

The promoter holding stands at under 15 per cent now and the issue about the levels it can reach will get resolved with the RBI coming out with a review of the governance framework, Kathpalia said in reply to questions on the progress on the promoters' request to hike the holding. The bank scrip closed 0.53 per cent down at Rs 585.60 a piece on the BSE as against a correction of 0.34 per cent on the benchmark.