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IndusInd Bank Records 30 Per Cent Jump in Net Profit

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Private sector lender IndusInd Bank Ltd on Tuesday reported a 30% jump in its net profit for the quarter ended 31 December 2015 on strong growth in its core operating income and other income.

Net profit for the quarter stood at Rs.581.02 crore compared to Rs.447.19 crore—an increase of 29.9%. A poll of 22 Bloomberg analysts had pegged net profit at Rs.579.10 crore.

Net interest income, or the core income from lending businesses, rose 36.23% to Rs.1,173.42 crore in the October to December quarter compared to Rs.861.37 crore in the year-ago period. Other income, which includes earnings from fee-generating businesses, rose 29% to Rs.839 crore from Rs.649 crore in the year-ago quarter.

Net interest margins for the bank improved to 3.91% for the reported quarter from 3.67% a year ago aided by a sharper fall of 12 basis points to 5.80% in cost of funds compared with a fall of 9 bps in yield on assets to 9.71%. One basis point is one hundredth of a percentage point. Romesh Sobti, managing director and chief executive officer of the bank expects to maintain healthy margins adding that the implementation of the new method of marginal cost of funds to arrive at lending rates would not impact the bank’s margins. “Internally we are developing the MCLR for different tenors. This new methodology will create more sensitivity to policy rates. But I think the impact because of our fixed rate book, it is very marginal for us,” said Sobti.

The RBI introduced marginal cost of fund based lending rate (MCLR) in December and has mandated banks to shift to this new method from April onwards.

Asset quality at the private bank remained largely steady although the bank increased provisions during the quarter. Gross non-performing assets (NPAs) at the end of the quarter were at 0.82% of total loans compared to 0.77% in the July-September quarter and 1.05% in the year-ago period.

Net NPAs stood at 0.33% compared to 0.31% in the quarter ended 30 September 2015 and 0.32% in the same period last year.

Although incremental slippages rose for the bank to Rs.252 crore during the reported quarter from Rs.189 crore in the July to September period, the slippage ratio narrowed to 1.07% for the reported quarter from 1.29% a year ago.

The bank sold bad loans worth Rs.53 crore to asset reconstruction companies during the quarter.

However, during the quarter the bank set aside Rs.177 crore in the form of provisions compared to Rs.158 crore in the previous quarter and Rs.98 crore in the year-ago quarter. A number of banks have been setting aside additional provisions as a counter cyclical buffer.

The bank also reported a healthy growth in its corporate loan book as well as retail loan portfolio. The corporate loan book grew by 30% while retail expanded by 27% leading to an overall loan book growth of 29%. Excluding the impact of the acquisition of diamond and jewellery finance business of Royal Bank of Scotland, the overall loan book growth would come down to 25%, said Sobti. The private lender completed the acquisition in July 2015.

Its recent foray into low-cost housing finance will also boost its retail book. “Our low-cost housing finance is an extension of our microfinance business. But unlike microfinance, we would also be lending to urban customers for low-cost housing,” said Sobti. The non-vehicle retail loan portfolio of the bank grew 45-50% and Sobti expects the growth to sustain.

The bank has also tied up with payments solution company PayU in its bid to ramp up retail presence. The bank also added 51 branches to its growing network. “We expect the bank to emerge far stronger over the next few years, driven by strong capitalization, rapid and strategic branch expansion, strong growth in retail business, superior asset quality and robust earnings,” said Emkay Global Financial Services in its note on the bank’s earnings.

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