IndusInd Bank deposit shrinks 7 per cent in March quarter

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Published: April 7, 2020 12:22 PM

The rating action reflects the downside risks to asset quality amid the deteriorating macroeconomic environment and financial market volatility, the rating agency said in a note.

IndusInd Bank, IndusInd Bank  deposits, Yes Bank crisis, CASA ratio, Hinduja Group, RBI, liquidity coverage ratioThe proportion of microfinance and vehicle finance for IndusInd Bank is higher than the peers and these loans have a high risk of getting impacted due to the current stress as they have limited capacities to repay, it said.

Private sector lender IndusInd Bank has reported a 7 per cent decline in deposits during the March quarter due to withdrawals triggered by the Yes Bank crisis. Deposit base of the bank declined to Rs 2,02,303 crore in the quarter ended March as against Rs 2,16,713 crore in the previous quarter, the bank said in a late-night regulatory filing on Monday.

As a result, the bank’s current account savings account (CASA) ratio slipped to 40.5 per cent during the fourth quarter of 2019-20 from 42.4 per cent in the third quarter. On concerns of financial health, IndusInd Bank, promoted by Hinduja Group, has seen withdrawal of bulk deposits from the banks after the Reserve Bank of India (RBI) superseded the board of Yes Bank in the early March.

However, the bank has reported a marginal 1.2 per cent increase in net advances during the quarter at Rs 2,09,914 crore from Rs 2,07,413 crore in the December quarter. It further said the retail deposits and deposits from small businesses in accordance with the liquidity coverage ratio (LCR) regulations have also seen some improvement at Rs 62,587 crore as against Rs 60,939 crore in the third quarter of 2019-20.

Last month, the bank had said the deposits fell 10-11 per cent and almost two-thirds of reduction is on account of government-related accounts — this is largely related to general private sector bank stance.

“This will also result in lower CASA ratio, but reduce our dependency on this category for deposits in future,” IndusInd Bank had said. Last week, Moody’s Investors Service placed IndusInd Bank’s ratings under review for downgrade on concerns of asset quality.

The rating action reflects the downside risks to asset quality amid the deteriorating macroeconomic environment and financial market volatility, the rating agency said in a note. The proportion of microfinance and vehicle finance for IndusInd Bank is higher than the peers and these loans have a high risk of getting impacted due to the current stress as they have limited capacities to repay, it said.

The bank’s funding is also weak when compared to other rated Indian banks, as reflected by its high deposit concentration and low share of retail deposits, the agency said adding that this makes the bank more susceptible to the dislocations in the financial markets, including on wholesale funding sources.

India Ratings, Indian subsidiary of Fitch Group, also revised downwards its outlook to negative from stable.
The outlook revision factors in the possible greater challenges for the bank than that for its peers regarding its deposit base, because of its above-average dependence on institutional deposits and funding, India Ratings said in a statement.

This could lead to the bank accessing other avenues of funding such as borrowings and capital market instruments amid the challenging operating environment (coronavirus-led lockdown), it said.

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