Private sector lender IndusInd Bank's first quarter (April-June) net profit grew 52% year-on-year to Rs 180 crore, driven by strong credit growth and higher fee income. This could partly allay fears about a sharp drop in the quarterly performance of banks because of rising interest rates, which pushes up the cost of funds ans also prompts many customers to defer their borrowing.
However, the net interest margin has sequentially fallen by 9 basis points (bps) to 3.41% indicating that bank margins will come under pressure in Q1 due to rising cost of funds.
“Despite banks entering into a slack season, we have maintained an impressive credit growth,” says Romesh Sobti, MD and CEO, IndusInd Bank.
“We have seen significant increase in consumer finance business including auto and credit cards. We hope to maintain overall growth of 25%to 30% in FY12.,” Sobti added.
Core fee based income (excluding trading income) rose 44% YoY to Rs 187 crore. The bank recently acquired the credit card business of Deutsche Bank on June.
Total advances grew by 31.36% to Rs 28,384 crore. Consumer finance business grew by 4% YoY, while corporate lending rose 25%. “Our credit growth is very secular. We don’t have much exposure to infrastructure landings, while our NBFC loans accounted for 5.37% of the loan book, down by around 100 basis points,” Sobti said.
This NBFC exposure doesn’t come under priority sector segment. These are normal loans given to rated non-banking finance companies like Mahindra Finance, Shriram Transport and others.
Of late, RBI has been concerned about banks rising exposure to NBFC loans falling under priority sector category.
On being asked about the same pace of credit growth in FY12, Sobti said, “In a rising interest rate scenario, everything depends on how you reprice your loan book. In most of the case we have been able to pass on higher cost of borrowings to our customers. Our corporate loan book has been repriced by 90 basis points.”
In Q1, the bank has hiked its benchmark prime lending rate by 125 basis points. “Our migration from BPLR to base rate is taking place. When base rate was introduced, we had only 15-20% of customers shifting to the base rate system. Now, with every renewal of working capital loans every year, this migration has become faster,” Sobti told moneycontrol.com.
For term loans, renewal doesn’t happen every year normally, but only over a longer duration like 3-4 years. IndusInd Bank, however, has a reset clause for term loans that comes after every six months only.
Deposits also grew by 29% YoY to Rs 35,264 crore. Sobit did not rule out a further hike in lending rates, if the RBI increases its key policy rates in the coming quarter.
The stock had outperformed the market over the past one month till Jul. 7, 2011, rising 6.61% compared with the Sensex`s 3.15% rise. It outperformed the market in past one quarter, gaining 3.83% as against 2.62% fall in the Sensex. Shares of the company gained Rs 3.45, or 1.21%, to trade at Rs 288.00. The total volume of shares traded was 248,528 at the BSE.
Source: www.moneycontrol.com
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