Indusind Bank Ltd., one of the fifth largest private sector bank in India, in its Q3 earnings call discussed about challenges in its microfinance segment, leading to reduced quarterly disbursements from INR14,000-15,000 crores to INR9,000 crores, while utilizing contingency buffers of INR160 crores for MFI and INR40 crores for corporate accounts. The bank aims to maintain MFI at 8-10% of its loan book and is being selective with repeat loans to multi-lender customers. In its credit card business, management addressed that 40% of its customers are either revolvers or EMI-based, with elevated NPAs noted in this segment. Vehicle financing was stable, though stress existed in small commercial vehicles and tractors. The bank is also working to reduce bulk deposits in favor of retail LCR deposits, while managing through recent senior management changes.
Indusind Bank faced significant challenges in Q3, with consolidated net profit declining 39%, falling short of analysts’ expectations. The primary factor was an 85% surge in provisions, mainly due to stress in the MFI segment. The bank’s financial metrics showed broad deterioration, with net interest income decreasing to INR5,228 crore and net interest margin contracting to 3.93% from 4.29%. Asset quality also weakened, with gross NPA ratio increasing to 2.25% and net NPA rising to 0.68%. However, there were some positive indicators, including a 12% year-on-year growth in advances to INR3.66 lakh crore and an 11% increase in deposits to INR4.09 lakh crore. Despite the mixed results, management remained optimistic about MFI segment recovery, citing improved collection efficiency at 99.5%, though concerns about Karnataka’s draft ordinance affecting loan recoveries persist. Management also announced plans to appoint a new CFO within the next 90-120 days.
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Financial/Operational Metrics:
- Revenue: INR15,155 crore, up 8.5% YoY.
- Net Profit: INR1,402 crore, down 39% YoY.
- Basic EPS: INR18.01, down 39.1% YoY.
- Net Interest Income (NII): INR5,228 crores, down 1.3% YoY.
- Deposit Growth: INR4,09,438 crores, up 11% YoY.
Outlook:
- Microfinance: Cautious stance on microfinance, expecting stabilization from Q1 FY26.
- Retail and Deposits: Focus on growing retail loan book & deposit base.
- Strategic Investments: Continued investment in digital banking & MSME lending.
Analyst Crossfire:
- Contingency Buffer Utilization, Margin Outlook & Interest Reversals (Kunal Shah – Citigroup): INR160 crores of the contingency buffer was allocated to microfinance (MFI) and INR40 crores to a corporate account. Elevated slippages in Q4 are expected, with 30-90 DPD remaining at 4% due to challenges in October and November. While margin guidance is unclear due to microfinance stress, stabilization and RBI policy decisions will determine future expectations. A clearer picture will emerge in Q4 (Sumant Kathpalia – CEO).
- Corporate Loan Yields Decline, Slippages in Retail & Vehicle Finance (Rikin Shah – IIFL): Corporate yields have fallen due to improved risk-weighted asset management and EBLR repricing. The bank prioritized lending to high-rated accounts (AA & AAA), sacrificing yields for lower risk. While gross NPA flows have increased, recovery in vehicle finance remains strong. Credit card business is experiencing industry-wide stress but is stabilizing. Retail loan slippages should moderate over the next two quarters (Sumant Kathpalia – CEO).
- MFI Share in Loan Book, MFI ROA & Risk Management (Chintan Joshi – Autonomous): The bank has reduced MFI’s share from 13%-14% to 9% and aims to maintain it at 8%-10%. A new vertical, Bharat Vikas Banking, will diversify rural business beyond microfinance. Through cycles, the MFI business is expected to generate 2.5%-3% RoA, with a credit cost of 2.5%-3.5%. The bank maintains a 2% buffer provision to absorb cyclical stress (Sumant Kathpalia – CEO).
- Vehicle Finance Growth & Asset Quality, Microfinance Disbursement Strategy (Abhishek Murarka – HSBC): Disbursements in Q4 are expected to be similar to Q3 (~INR13,500 crores). Commercial vehicle growth will align with GDP, requiring >6% growth for meaningful expansion. Disbursements will focus on good customers and centers (85%-88% of total). Growth should improve QoQ, but external factors like Karnataka regulations and Uttar Pradesh trends will be monitored before giving guidance (A.G. Sriram – Head of Vehicle Finance).
- Credit Card NPA Trends & Commercial Vehicle Asset Quality (Shubhranshu Mishra – PhillipCapital): Gross NPA in credit cards has increased due to industry-wide stress. Revolvers account for 24% of the base, while EMI-based customers make up 16%. The bank maintains a cautious approach to unsecured lending, keeping it at ~6% of the loan book. Light and small commercial vehicles face higher slippages due to new-to-credit borrowers, but higher yields offset the risk. Loss Given Default (LGD) in SCVs is ~45% (Sumant Kathpalia – CEO, A.G. Sriram – Head of Vehicle Finance).
- Contingent Provisions Utilization & Senior Management Stability (Jai Mundhra – ICICI Securities): The bank holds contingent provisions at 4% of MFI loans but will determine future utilization based on stress levels and upcoming ECL regulations. Despite CFO attrition, leadership remains stable, with succession planning in place. Several senior roles have been filled with experienced hires (Sumant Kathpalia – CEO, Zubin Mody – HR Head).
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