Indusind Bank Sees 40% Drop in Q2 Net Profit Amid Asset Quality Concerns

Indusind Bank has reported a 40% drop in net profit for the September quarter, amounting to Rs 1,331 crore. This decline is largely due to asset quality concerns. The bank has set aside an additional Rs 525 crore as prudential provisions to address challenges in the current operating environment. Reduced interest income, due to higher slippage and a decrease in microlending portfolio income, also impacted profits.

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The core net interest income saw a modest growth of 5% year-on-year, reaching Rs 5,347 crore. This was supported by a 13% increase in loan growth, despite a 0.21% contraction in the net interest margin, now at 4.08%. Sumant Kathpalia, the bank's CEO and MD, expressed confidence that the business trajectory remains stable despite underperformance against targets for two quarters.

Asset Quality Challenges and Strategic Adjustments

Kathpalia acknowledged that loan growth fell short of the bank's medium-term target of 18-20%. He anticipates margins will return to over 4.2% by fiscal year-end. The margin contraction is attributed to a 9% decline in the microfinance book, which was slowed due to asset quality concerns and efforts to boost deposit mobilisation.

Asset quality issues have been noted in regions like Bihar, Jharkhand, and Maharashtra. Kathpalia clarified that unlike peers, over-leveraging isn't causing microfinance challenges. The de-growth led to a reduction in microfinance loans' share from 12-13% to 9%. Unsecured loans remain within the bank's limit at 6%.

Fresh slippages amounted to nearly Rs 1,800 crore, increasing the gross non-performing assets ratio to 2.11% from 2.02% previously. Consequently, provisions and contingencies surged by 87% to Rs 1,820 crore. Kathpalia stated that taking a short-term profit hit was necessary for long-term balance sheet strengthening with an additional Rs 525 crore provision.

Corporate Lending and Future Outlook

Kathpalia noted an uptick in private capital expenditure and reported a faster corporate lending growth rate of 14%. He expressed optimism about vehicle finance performance in the future. Although he did not provide specific figures, he mentioned that credit growth is expected to rise in the second half of the fiscal year.

The bank's overall capital adequacy stands at a robust 17.55%, with a core buffer of 16.15%. On Thursday, Indusind Bank's stock closed at Rs 1,278.90 on the BSE, marking a slight increase of 0.53%, compared to a minor correction of 0.02% on the benchmark index.