MOSL: INDIAN BANK (Buy) - Balance sheet growth picks up, asset quality deteriorates due to accelerated recognition

INDIAN BANK: Balance sheet growth picks up, asset quality deteriorates due to accelerated recognition

(INBK IN, Mkt Cap USD2.3b, CMP INR314, TP INR371, 18% Upside, Buy)

• INBK reported a loss before tax of INR3.8b, as provisions were elevated due to high slippages from the RBI's revised stress asset guidelines. However, tax write-backs led to PAT of INR1.3b (60% miss). Provisions included ~INR540m toward NCLT exposures, INR3.7b toward accounts slipped due to the RBI's revised stressed asset guidelines, and INR1.02b toward MTM losses.
• NII grew 18% YoY to INR16.4b (2% miss), led by 23% YoY loan growth, with flattish margin (NIM at 2.84%), despite interest reversals of INR320m. NII growth was partially offset by lower other income (-16% YoY due to an 85% decline in treasury gains of INR0.2b).
• PPoP growth stood at 9% YoY due to higher-than-expected opex growth of 7% YoY, as the bank incurred INR309m of gratuity provisions; CI ratio stood at 45.3% (+100bp QoQ).
• Slippages increased 216% QoQ to INR30.2b, led by INR17.3b of slippages from the RBI's revised stress asset guidelines. The bank further reported divergence of INR5.4b (GNPA) for FY17. GNPA increased 25% QoQ to INR119.9b. The bank largely maintained its PCR (64.27%, -46bp QoQ), leading to NNPA increasing 22% QoQ to INR59.6b.
• Total net stressed book, including standard restructured as of 4QFY18, stands at INR80.4b (5.1% of the loans).
• Loan book grew 6%/23% QoQ/YoY to INR1.56t, while deposits grew 1%/14% QoQ/YoY to INR2.08t. CD ratio, thus, rose 338bp QoQ to 75.2%. CASA deposits grew 15% YoY, led by 32% YoY growth in CA deposits.