Analyst Corner: IndusInd Bank not to see haircut on IL&FS exposure

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New Delhi | Published: October 17, 2018 12:15:32 AM

PAT of Rs 9.2bn was substantially lower than the consensus estimate of Rs 10.98bn due to a provision of Rs 2.8bn on IL&FS. Growth in PAT was the lowest in many quarters at 5% y-o-y (decline of 11% qoq).

IndusInd Bank not to see haircut on IL&FS exposure

PAT of Rs 9.2bn was substantially lower than the consensus estimate of Rs 10.98bn due to a provision of Rs 2.8bn on IL&FS. Growth in PAT was the lowest in many quarters at 5% y-o-y (decline of 11% qoq). Excluding this provision, PAT growth would have been in line. Operating profit was broadly in line. Stronger than expected loan growth and lower than expected opex were the key positives which were offset by substantially lower trading gains and lower NIMs. Core PPOP grew 30% y-o-y and 7% q-o-q.

Loan growth was exceptionally strong at 33% y-o-y and 8% q-o-q. Corporate loan growth of 35% y-o-y/ 10% q-o-q outpaced retail loan growth of 29% y-o-y/6% q-o-q. A portion of the corporate loans acquired this quarter will be sold down in the subsequent quarters especially in real estate and EPC. Loan growth in these sectors will cool off as sell downs happen.

Yield on loans rose sharply by 29bps q-o-q to 11.44%. However cost of funds rose faster leading to a decline of 8bps q-o-q in NIMs to 3.84%. Y-o-Y NIMs have come off by 16bps. Core fees grew 20% y-o-y and 5% q-o-q led by general banking fees and third party distribution. Investment banking fees grew 15% y-o-y and 2% q-o-q. Trading gains crashed falling to `990m versus `1,370M q-o-q and `1,750M y-o-y. Overall non-interest income grew 11% y-o-y and 1% q-o-q.

We believe IIB has an exposure of `24bn to IL&FS though management did not quantify. The exposure is broadly to two entities 1) Chenani Nashri Tunnel 2) IL&FS parent. Management believes that there will be no haircuts on the first because the project is rated AAA (SO). The second exposure to the parent was taken very recently (3 months ago) and is rated D. This exposure was given as liquidity funding — akin to a bridge loan till IL&FS could complete its rights issue. But after the disbursal, IL&FS was downgraded and the rights issue has been delayed. Management believes that as soon as rights or a liquidity infusion happens, IIB will be repaid. Based on management’s judgement of haircut and with auditors consent, the bank has provided `2.8bn on IL&FS though it was a standard asset at end September and no provisions were required.

By- IDFC Securities

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