IndusInd Bank's asset quality remains stable as GNPA inched up to 2.88% vs 2.67% QoQ (2.53% YoY) led by lower slippages; slippage ratio (annualized) stood at 5.2% vs 7.2% QoQ. Restructured book increased to 2.7% vs 2% QoQ which comprises of 55% Vehicle, 14% non-vehicle and rest from corporate book. Bank reported collection efficiency at 96% for June month; however due to lockdown in specific states it was lower in April and May month. Deposit reported strong growth of 26% YoY; advances growth improved to 6% YoY vs 3%YoY (FY21).

Management guided for credit growth of 16-18% CAGR in next 2 years which is the key monitorable along with CV cycle uptick expected in H2FY22. NII grew by 8% YoY (up 1% QoQ) while NIMs declined QoQ. Non-interest income grew by 17% YoY (flat QoQ). PAT grew by 112% YoY due to decline in provisions (down 18% YoY). Bank maintains overall provision of Rs 20.5 billion as standard contingent provisions and 3.6% of loan related provision. "We have 'BUY' rating with a TP of Rs.1,140 based on P/BV of 1.7x FY23E as liability risks have declined and focus shifted back on credit growth," said IDBI Capital in its research report.

Key highlights and investment rationale

Deposit growth remains robust; Credit growth improved sequentially: Deposits grew by 26% YoY (27% YoY FY21) led by 22% YoY growth in term deposits and 33% YoY growth in CASA deposits. Liability franchise concern has largely abated which is the key positive. Cost of deposit seen reduction in Q1FY22 and reduced by 76bps YoY and 6bps QoQ. Credit growth improved to 6% YoY (vs 3% FY21) due to improvement in corporate book growth (4% QoQ) with fresh lending picked up. Retail book now stands at 56% of the total loans with addition of Business Banking and MFI portfolio to it.

Asset quality stable; 2.7% restructured book: Bank asset quality stable with GNPA at 2.88% vs 2.67% QoQ; NNPA at 0.8% vs 0.7% QoQ with decline in PCR to 72% vs 75% QoQ. Bank restructured book stands at 2.7% of book (vs 2% FY21) however; within that major portion is from consumer finance division (55%), corporate is 31% and non-vehicle retail is 14%. Bank maintains 3.6% of loan related provision of total book and contingent provisions of Rs 20.5 billion which provided cushion on P&L impact from any adverse impact of telecom sector.

NIMs declined sequentially; collection efficiency at 98%: NIMs declined by 7bps QoQ to 4.07% although cost of funds declined; interest reversal impacted the margins during the quarter. Bank reported Collection efficiency at 96% for June month while Collection efficiency declined in April and May month due to lockdown in several states. Impact of restructured assets and telecom exposure needs to be watch for.

Outlook: Continuation of business strategy under the new CEO has resulted in navigating through asset quality concerns better. Also, with higher liquidity (LCR at 140%) and bigger concern on deposits growth which is the key ingredient for banking industry have largely abated.

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