IndusInd Bank's Q3 net profit increases 58% YoY on firm loan growth

Lower provisions boost numbers for lender; NIM maintained despite higher deposit rates

Private lender IndusInd Bank on Wednesday reported a 58 per cent year-on-year (YoY) jump in consolidated net profit to Rs 1963.64 crore in October-December on the back of strong growth in net interest income.

A sharp decline in provisions for bad loans also boosted the bank’s bottomline in the third quarter of the financial year.

Sequentially, the bank’s net profit registered a growth of 9 per cent from Rs 1805.28 crore in July-September.

On a standalone basis, IndusInd Bank’s net profit surged 69 per cent YoY to Rs 1959.20 crore in October-December.

For the quarter under review, IndusInd Bank’s consolidated net interest income grew 18 per cent YoY to Rs 4,495 crore as loan growth was firm, the bank said in a release. The net interest income is the difference between interest earned and interest expended.

As on December 31, the bank’s deposits were at Rs 3.3 trillion, up 14 per cent on-year. Current Account Savings Account deposits, which are low-cost deposits, were at Rs 1.4 trillion.

Advances grew 19 per cent on-year to Rs 2.7 trillion as on December 31, 2022.

IndusInd’s net interest margin was at 4.27 per cent in October-December, up from 4.24 per cent a quarter, ago, said the bank’s managing director and chief executive officer, Sumant Kathpalia, in a post-earnings conference call.

“Our loan yield improved by 24 basis points quarter-on-quarter and yield on overall assets improved by 34 basis points quarter-on-quarter. The cost of deposits increased by 37 basis points and cost of funds increased by 31 basis points during the quarter,” Kathpalia said.

Banks have been reporting healthy interest incomes for the last couple of quarters as lending rates have risen sharply in tandem with the Reserve Bank of India’s rate hikes. The rise in deposit rates has lagged that in lending rates, many of which are linked to external benchmarks tied to the central bank’s policy rates.

However, with most banks having sharply raised deposit rates in the previous quarter in order to mobilise funds to finance strong loan growth, analysts have questioned the ability to continue with strong interest margins,

According to Kathpalia, IndusInd Bank would be able to maintain its net interest margin within the lender’s stated range of 4.15-4.25 per cent despite recent rounds of increases in deposit rates.

“If you see our corporate assets, the yield has increased by 37 basis points. That’s something which is where the re-pricing is happening. On our fixed-rate book, what happens is that there is a lag on which the yields come in. The new disbursements are happening at a higher yield,” he said.

“Overall our loan yields have increased by 24 basis points quarter-on-quarter whereas the yield on overall assets has improved by 34 basis points. I think our ability to pass on the increased yield, the cost of deposits has been there and that’s why we’ve been able to maintain our NIMs in the range of 4.15-4.25 per cent,” he said.

As on December 31, 2022, IndusInd Bank’s provisions and contingencies declined 36 per cent to Rs 1065 crore as against Rs 1654 crore the same time a year ago. The total loan-related provisions were at Rs 7,435 crore, or 2.7 per cent of the loan book as on December 31, the bank said.

The bank reported an improvement in gross bad loan ratio, with the gross NPA ratio at 2.06 per cent as on December 31, 2022 lower than 2.11 per cent as on September 30, 2022 and 2.48 per cent a year ago. Net NPAs were at 0.62 per cent as on December 31, steady versus 0.62 per cent a quarter ago but lower than 0.71 per cent a year ago.

As on December 31, 2022, the provision coverage ratio was at 71 per cent. Total Capital Adequacy Ratio as per Basel III guidelines was at 18.01 per cent as on December 31, 2022, versus 18.06 per cent as on December 31, 2021.