EUR 120.00 For Business Accounts Only

MOSL: INDIAN BANK (Neutral)-Higher other income supports earnings; asset quality stable

Indian Bank: Higher other income supports earnings; asset quality stable

(INBK IN, Mkt Cap USD0.9b, CMP INR105, TP INR120, 14% Upside, Neutral)

 

Business growth to moderate; credit cost to stay elevated

• INBK reported moderation in loan growth, led by a 4% YoY decline in its corporate book. However, asset quality remains largely stable despite higher slippages. We expect the operating performance to remain modest (NII, core fee income, PPoP), although credit cost is likely to remain high.
• We revise our estimates to factor in increased other income, moderation in loan growth and higher credit cost. Maintain Neutral. 

Operating performance remains modest; opts for lower tax rate

• PAT increased 62% YoY to INR2.5b (our estimate: loss of INR1.2b), largely due to interest on income tax refund of INR3b. INBK availed the option of lower tax regime and thus reversed DTA of INR1.4b.
• NII grew by a healthy 14% YoY to INR19.5b, while NIM was largely stable at 2.92% as the bank reversed interest of INR1.1b. Core fee income grew by 32% YoY, which also further supported other income. Opex increased 6% YoY, resulting in PPoP growth of 67% YoY to INR19.2b. Excluding one-offs, the C/I ratio was down 240bp QoQ at 39.8% (v/s 42.3% in 2QFY20).
• Loan growth moderated to 8% YoY, led by slowdown in the corporate book (-7% QoQ), while Retail (+22% YoY), MSME (+19% YoY) and Agri (+13% YoY) book continued growing strongly. Within retail, housing loans grew strongly at 30% YoY. Deposits were up 14% YoY, led by an 11% YoY increase in SA deposits (+2% QoQ). CASA mix stood at 34.5% (-15bp QoQ).
• Fresh slippages elevated to INR22b, led by an HFC account of INR13b, while higher recoveries and write-offs of INR3.5b/INR1.7b resulted in a 0.8% QoQ decline in GNPA. NNPA declined by 1.9% QoQ. NNPA ratio was down 4bp QoQ to 3.5% as PCR improved ~50bp QoQ to ~53% (70.8% incl. tech w/off).