Encouraging IndusInd Bank’s growth; refinance loan concern

After a pain in the first quarter in growth due to the second wave of the pandemic, IndusInd Bank saw a rapid return to disbursements. Loan growth was up 10% year-on-year (y-o-y), interestingly driven by corporate loans, which grew 16%. Retail loans, on the other hand, grew only 5.1% year-on-year. This is because IndusInd Bank’s flagship loan segment, commercial vehicle loans, is still not out of the woods.

Private sector lenders remain cautious as these loans have become less in the last one year. Thus, the share of the vehicle finance segment in the overall loan book has come down to 27% from 30% a year ago. To be sure, disbursements sprung up sequentially. On Wednesday, the bank’s managing director Sumant Kathpalia said that the portfolio is improving. “Commercial vehicles have been affected due to the pandemic but we are seeing continuous improvement. It also needed some restructuring.”

IndusInd Bank Ltd reported a staggering 73% growth in net profit for the September quarter, beating the road estimates comfortably. Main interest income and fee income both contributed to profit growth, which should bring comfort to investors.

After a pain in the first quarter in growth due to the second wave of the pandemic, IndusInd Bank saw a rapid return to disbursements. Loan growth was up 10% year-on-year (y-o-y), interestingly driven by corporate loans, which grew 16%. Retail loans, on the other hand, grew only 5.1% year-on-year. This is because IndusInd Bank’s flagship loan segment, commercial vehicle loans, is still not out of the woods.

Private sector lenders remain cautious as these loans have shrunk in the last one year. Thus, the share of the vehicle finance segment in the overall loan book has come down to 27% from 30% a year ago. To be sure, disbursements sprung up sequentially. On Wednesday, the bank’s Managing Director Sumant Kathpalia said that the portfolio is improving. “Commercial vehicles have been affected due to the pandemic but we are seeing continuous improvement. It also needed some restructuring.”

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This brings us to the lender’s restructured debt pile, which grew to 3.6% of total book in the September quarter.

Granted, IndusInd Bank reported an improvement in bad loan metrics, with the ratio showing a sequential decline. Still, investors should take a closer look at this restructured debt pile. Management has assured that the heap is showing improvement in performance. But it is one of the highest in the industry. One comfort is that the bank has a good provision against stress. IndusInd Bank shares have matched the performance of the broader Nifty over the past six months. From here, the lender has to show flexibility in asset quality.