IndusInd Bank Q3 profit jumps 50%, admits to lapses in MFI lending

IndusInd Bank Ltd saw a near 50% jump in net profit led by increase in fee income and aided by credit growth as well as signs of asset quality improvement.

The Mumbai-based bank, owned by the Hinduja Group, reported a consolidated net profit of Rs 1,241.55 crore for the three months ended December 2021 compared with Rs 830.41 crore.

Its consolidated net profit stood at Rs 1,146.73 crore for the quarter ended September 2021.

The bank’s net interest income (NII) stood at Rs 3,793.57 crore, up 11.37% from the corresponding period last year after it increased loans to small and mid-sized corporates, but slowed disbursements to the microfinance sector amid whistleblower complaints.

NII, the difference between interest earned and interest paid, was at Rs 3,406.1 crore at the end of December 2020 and Rs 3,658.40 at the end of September 2021.

Asset quality showed signs of improvements with the bad loan ratios contracting by 9-29 basis points from the preceding quarter.

Other Key Highlights

1) Q3 net interest margin improved to 4.10% versus 4.07% in the second quarter and 4.12% a year earlier.

2) Core fee income grew by 9% to Rs 1,519 crore.

3) Deposits grew 9% year on year to Rs 2.84 lakh crore; savings deposits grew by 35% to Rs 86,615 crore.

4) Other income grew by 14% to Rs 1,877 crore from Rs 1,646 crore a year earlier.

5) Overall provisions came at Rs 1,654 crore as against Rs 1,853 crore in the year-ago period.

6) Gross NPA stood at 2.48%, while net NPA was at 0.71%.

Management Commentary

“The country saw a resurgence of the Covid wave during Q3. The economic impact however has not been as severe due to effective policy responses…Our loan book grew by 10% y-o-y driven by healthy growth in most of the customer segments,” said IndusInd bank’s managing director and chief executive officer, Sumant Kathpalia.

“While the Covid remains a risk to watch out for, the implications of the recent wave on our businesses have been limited. We are thus committed to executing our strategy quarter on quarter,” he said.

Kathpalia admitted to procedural lapses in its microlending vertical earlier during the fiscal (as revealed by an internal investigation into a whistleblower complaint on November 6), but assured it will not lead to any financial hit. He said the bank had finished an internal review even as the findings of an external review are yet to be completed.

“The internal report has informed us that there was one MFI product, which offered liquidity support to customers impacted by COVID second wave after clearing existing dues. However, it was observed that cash disbursement and repayment of arrears took place on the same day, which is a procedural lapse in our opinion. The product was discontinued in September," Kathpalia said.

Loans worth Rs 179 crore were outstanding under the product, and all of them have been written off after being provided fully, and that the overall credit cost on the MFI portfolio – which accounts for 12% of the bank's overall advances – will not exceed 8%, said Kathpalia.