IndusInd Bank Gets RBI Approval For Setting Up A Wholly Owned Subsidiary For Asset Management Business

The shares of IndusInd Bank saw a positive opening on Tuesday at Rs 1360.05 per share. Following the bank's announcement that it will be establishing a wholly-owned subsidiary to handle mutual fund asset management, the shares rose to an intraday high of Rs 1371.75.

"This is to inform that the Reserve Bank of India vide letter dated August 19, 2024, has accorded its approval to the Bank for setting up a wholly owned subsidiary to undertake asset management business of Mutual Fund along with infusing equity capital in the said asset management subsidiary, subject to the additional conditions as set out in the said letter," said IndusInd Bank in a stock exchange filing on Monday.

The bank initiated the Planning Cycle 6 (PC-6) plan for the FY24-FY26 term during FY24. Growth, Granularity & Governance, or 3G, continues to be the centre of the PC-6 strategy, with a strong commitment to it and a concentration on the major principles that drive it.

Driven by the services and retail sectors, growth in non-food bank lending grew to 16.3% year over year as of March 2024, up from 15.4% as of March 2023. The bank achieved its first-year strategic objectives for planning cycle-6 (PC-6) with strong traction across key business KPIs in FY24.

Financially speaking, as of March 2024, the bank's balance sheet surpassed Rs 5 lakh crore, bolstered by deposits of Rs 3,84,586 crores (a 14% year-on-year rise) and loans of Rs 3,43,298 crores (an 18% year-on-year increase). The bank's overall income (net of interest expenditure) dropped to Rs 30,012 crores from Rs 25,765 crores in the prior year as a result. Preprovision operating profit increased to Rs 15,864 crores while operating expenses totalled Rs 14,148 crores. The net profit increased by 21% year over year to Rs 8,977 crores. Throughout the year, the return ratios were robust and steady, with returns on equity (RoE) and assets (RoA) that were around 1.9% and 15%, respectively.

Through the introduction of new products and the expansion of its current fields, the bank is diversifying its loan book. Gains in market share for passenger cars, light commercial vehicles, and merchant acquisition attest to the effectiveness of this tactic.

IndusInd Bank Share Price Target

"IndusInd Bank's earnings fell short of expectations in the reported result due to increased provisions for the quarter. Deposits saw a healthy pick-up in the growth led by the traction in term deposits. Credit growth was lower than the Bank's aspiration to grow in the range of 18.0-20.0% for FY23-26E, led by external turbulence and the Bank's cautious stance to go slow with the disbursements during this period. IIB has seen a positive upturn in its credit card spending market share within the unsecured business segment. While remaining mindful of the concerns raised by RBI regarding the unsecured segment, IIB will prudently manage the mix of credit cards and personal loans. However, IIB will continue to focus on scaling up the select segments such as home loans and tractor financing to attain its growth aspiration and improve the secured loans mix in the coming quarters.

Retail deposits have continued to gain strong momentum, reflecting positively on the Bank's performance on the deposit side. IIB has been proactively aligning loan growth with deposit growth, prioritizing diversification and granularity in its approach. Although asset quality faced pressure due to seasonal and election-related factors, IIB remains confident and foresees credit costs in the range of 110-130 bps in FY25E," said KRChoksey Research.

The brokerage firm further added that "We have cut our net profit estimates by 6.2%/ 6.9%, considering a moderation in the operating growth and an increase in the credit costs, given the rising concern over the unsecured loan portfolio. We expect NII/ PPOP/ PAT to grow at a CAGR of 15.4%/ 13.9%/ 14.2% over FY24-26E. We expect the ROE/ROA to remain stable at 14.3%/ 1.7% in FY26E. IndusInd Bank shares are currently trading at a P/ Adj.BV multiple of 1.6x/ 1.4x on FY25E/ FY26E adjusted book value. We assign a P/B multiple of 1.75x to the FY26E adj. BVPS of INR 1,019.9 per share and revise our target price to INR 1,785 per share (earlier INR 1,880 per share), an upside of 25.0% over the CMP. Accordingly, we maintain our rating on the shares of IndusInd Bank at "BUY."