IndusInd Bank Hits Over 3-Year Low On Risk On Rising Bad Loans

Shares of IndusInd Bank continued their decline seen in the stock since the revision of Moody's outlook over concerns of further asset quality deterioration. The stock fell over 5 percent on Tuesday to a fresh low of Rs 1,108.45, a level last seen in December 2016.

On 11 February, Moody's Investors Services had revised its outlook on the private sector bank from 'stable' to 'negative.' The rating agency noted that there has been a deterioration in the asset quality of the bank in the last few quarters, especially in the corporate segment.

Tight refinancing conditions for borrowers were a key trigger for the crystallisation of nonperforming loans (NPLs), it said.

"In particular, the bank has a relatively higher exposure to real estate compared to other banks at around 8 percent of its loan book at 31 December 2019. While there have been no NPLs in this segment so far, this exposure to the property market remains a source of risk, given the broader stress in the real estate sector," Moody's said in its release.

"The bank could also be negatively impacted by the ongoing stress in the telecommunications sector," it added.

IndusInd Bank has a debt exposure of Rs 3,995 crore to Vodafone Idea, which was hit the hardest by the Supreme Court's verdict on AGR (adjusted gross revenue) to the Department of Telecom (DoT). Amid consecutive quarterly losses and mounting debt, the telecom operator is at the risk of liquidation.

Exposure to Vodafone Idea makes for 1.4 percent of its loan book.

"Overall, the bank's PCR (provision coverage ratio) at 53 percent we note is low vs the other private sector peer group. The bank will also need to provide around Rs 700 crore on account of its exposure to Dewan /Cox (classified as frauds) over the next 3Qs and this could keep credit costs elevated. Key monitorables near term hence will be any large recoveries that it can effect on the IL&FS exposure," said JP Morgan's recent report with 'neutral' rating on the stock.