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IndusInd Bank Q3 review: Despite an all-round beat in the December quarter (Q3) results for 2022-23 financial year (FY23), shares of IndusInd Bank settled 1.76 per cent down at Rs 1,201 apiece on the BSE on Thursday, after falling 3 per cent intra-day. By comparison, the benchmark S&P BSE Sensex ended 0.3 per cent lower.
The drop comes as analysts flagged deepening challenges to deposit growth, and potential margin compression in quarters ahead.
Nuvama Institutional Equities, for instance, has downgraded the stock to ‘hold’ from ‘buy’, and has cut its one-year target price to Rs 1,375 (from Rs 1,400) as it expects deposit competition to intensify in Q4, which may prove to be negative for mid-sized banks such as IndusInd.
"The management guided for 20 per cent year-on-year (YoY) asset and deposit growth each in FY24, higher than what peers are guiding. Deposit growth, however, is the real constraining factor. The sequential growth in operating expenditure (opex) for IndusInd has been lower than peers over the last three years, implying peers are investing more in branches and technology, which would eventually show up in balance sheet growth and customer acquisition," Mahrukh Adajania of Nuvama said in a co-authored report with Madhukar Ladha and Shrishti Jagati.
IndusInd Bank’s deposits rose 3 per cent quarter-on-quarter (QoQ)/14 per cent YoY, capped by a 3 per cent sequential decline in savings account (SA) deposits. This was after a dip of 6 per cent in Q2, despite the hike in savings rate. The management attributed the decline to customers moving to term deposits and their conscious strategy to give up some bulk SA.
However, current account (CA) deposits grew 13 per cent QoQ/50 per cent YoY driven by escrow in real estate, cash management for non-bank finance companies (NBFCs), PSU dividend mandates, and trading/forex.
"IIB managed to garner retail deposits in the form of CA and term deposits (TD) from select affluent and non-resident Indian (NRI) pockets. However, given its historically sub-par/non-sticky deposit profile, IIB would continue to face challenges in a deposit-constrained environment, given the narrowing wedge with loan growth," concurred Krishnan ASV, Deepak Shinde, and Neelam Bhatia of HDFC Securities.
They have ‘reduce’ rating on the stock with a target of Rs 1,060 per share as they believe accelerated competitive intensity for deposits is likely to result in a growth-margin trade-off.
That apart, analysts believe the lender may see pressure on net interest income (NII) and net interest margins (NIMs) from here on, given the dominance of fixed-rate portfolio and focus on retail TD mobilisation.
With nearly 50 per cent of its advances being fixed-rate in nature, and its focus on accelerating deposits, rising interest rates may be less favourable in the quarter ahead, warned ICICI Securities.
The drop comes as analysts flagged deepening challenges to deposit growth, and potential margin compression in quarters ahead.
Nuvama Institutional Equities, for instance, has downgraded the stock to ‘hold’ from ‘buy’, and has cut its one-year target price to Rs 1,375 (from Rs 1,400) as it expects deposit competition to intensify in Q4, which may prove to be negative for mid-sized banks such as IndusInd.
"The management guided for 20 per cent year-on-year (YoY) asset and deposit growth each in FY24, higher than what peers are guiding. Deposit growth, however, is the real constraining factor. The sequential growth in operating expenditure (opex) for IndusInd has been lower than peers over the last three years, implying peers are investing more in branches and technology, which would eventually show up in balance sheet growth and customer acquisition," Mahrukh Adajania of Nuvama said in a co-authored report with Madhukar Ladha and Shrishti Jagati.
IndusInd Bank’s deposits rose 3 per cent quarter-on-quarter (QoQ)/14 per cent YoY, capped by a 3 per cent sequential decline in savings account (SA) deposits. This was after a dip of 6 per cent in Q2, despite the hike in savings rate. The management attributed the decline to customers moving to term deposits and their conscious strategy to give up some bulk SA.
However, current account (CA) deposits grew 13 per cent QoQ/50 per cent YoY driven by escrow in real estate, cash management for non-bank finance companies (NBFCs), PSU dividend mandates, and trading/forex.
"IIB managed to garner retail deposits in the form of CA and term deposits (TD) from select affluent and non-resident Indian (NRI) pockets. However, given its historically sub-par/non-sticky deposit profile, IIB would continue to face challenges in a deposit-constrained environment, given the narrowing wedge with loan growth," concurred Krishnan ASV, Deepak Shinde, and Neelam Bhatia of HDFC Securities.
They have ‘reduce’ rating on the stock with a target of Rs 1,060 per share as they believe accelerated competitive intensity for deposits is likely to result in a growth-margin trade-off.
That apart, analysts believe the lender may see pressure on net interest income (NII) and net interest margins (NIMs) from here on, given the dominance of fixed-rate portfolio and focus on retail TD mobilisation.
With nearly 50 per cent of its advances being fixed-rate in nature, and its focus on accelerating deposits, rising interest rates may be less favourable in the quarter ahead, warned ICICI Securities.
