IL&FS again spooks IndusInd Bank numbers for straight second quarter, net rises a paltry 5% at Rs 985 cr in Q3

IndusInd Bank's overall exposure to the MSME sector stands at Rs 32,000 crore and there is no demand for a loan recast as of now, Sobti said.

Press Trust of India January 09, 2019 19:15:22 IST
IL&FS again spooks IndusInd Bank numbers for straight second quarter, net rises a paltry 5% at Rs 985 cr in Q3
  • Indusind Bank was known for booking 20-25 percent profit growth quarter after quarter for years

  • Of the bank's Rs 3,000-crore exposure to the IL&FS Group, Rs 2,000 crore is to the crippled parent

  • The Hinduja group-controlled bank's overall exposure to the MSME sector stands at Rs 32,000 crore

Mumbai: Loan exposure to the troubled infra financier IL&FS continued to depress IndusInd Bank's earnings for the second quarter in a row, as provisions for this account has led the lender on Wednesday report a sharp decline in profit growth for the December quarter.

The bank managed a paltry 5 percent increase in net income at Rs 985 crore for the third quarter of the fiscal year on impact of a Rs 255-crore provision on its IL&FS exposure, which had yanked down its bottomline growth to a tepid 4.6 percent in the September quarter as well.

The crippled company, which is being run by a government appointed board since October, owes Rs 3,000 crore to the company and has not been serviced since October, making it an SMA 2 account.

ILFS again spooks IndusInd Bank numbers for straight second quarter net rises a paltry 5 at Rs 985 cr in Q3

Representational image. Reuters.

The Hinduja group-controlled bank was known for booking 20-25 percent profit growth quarter after quarter for years. Even during the note-ban quarter the one after it, the lender had one of the best sets of numbers.

And signalling more troubles for the days ahead, managing director and chief executive Romesh Sobti guided towards more provisions in the March quarter, the exact quantum of which will be known only after the bank assessed the likely impact of the IL&FS saga in toto, But he said they have already built a buffer of Rs 600 crore to cushion nay negative surprises.

The overall provisions for the quarter stood at Rs 607 crore, almost three-times higher from Rs 237 crore in the year-ago period and but marginally higher from Rs 590 crore in the preceding quarter.

He said of the bank's Rs 3,000-crore exposure to the IL&FS Group, Rs 2,000 crore is to the crippled parent and the bank is analysing the "realisable value" of the collateral securities to decide on the extent of additional buffer.

The IL&FS account is classified as SMA 2 now, which means the account is due for 60 days. In another 30 days if the account is not regularised by clearing the dues, the lender can take the borrower to the bankruptcy court.

All the additional provisioning required will be done in March itself, he said, adding the exposure to the special purpose vehicles of the IL&FS Group does not require any provisioning.

At present, the exposure to IL&FS Group is "standard", but in the SMA1 and SMA2 categories showing initial signs of stress, which has led to the provisioning, Sobti explained.

It can be noted that the exposure to IL&FS, which started defaulting from late August last had led the bank to set aside additional provisions in the preceding quarter too. The IL&FS Group owes banks over Rs 55,000 crore of its overall Rs 94,000 crore-plus outstanding debt.

The Reserve Bank of India (RBI) has reportedly rejected lenders' plea for a special dispensation for letting them not classify their exposure to the infra lender upfront.

Sobti said excluding IL&FS exposure, it is business as usual at the bank, pointing out to the 27 percent jump in operational profit at Rs 2,117 crore for the reporting period and that the bank is in line to achieve its credit costs guidance for the fiscal at 0.60 percent, excluding the money set aside for IL&FS exposure.

Its net interest income grew 21 percent to Rs 2,288 crore, and it was a faster clip of 24 percent in other income due to gains on the trading front at Rs 1,469 crore that helped the overall bottomline from falling.

It registered a loan growth of 35 percent during the reporting period, driven largely by large corporate and vehicle loans, which is its mainstay. Sobti said its exposure to the non-bank financiers like IL&FS has gone down to under 4.6 percent of the overall book.

The bank had net interest margin was stable at 3.83 percent and he expects this to move up despite the prospect of reverses on yields it faces from IL&FS exposure. The share of the low-cost current and savings accounts deposits stood at 44 percent as of December end.

The bank's overall exposure to the MSME sector stands at Rs 32,000 crore and there is no demand for a loan recast as of now, Sobti said, when asked about the impact of the special dispensation that RBI had allowed recently.

A senior bank official said borrowers are unlikely to come forward to recast their loans as it hurts their credit histories, which may hurt their future borrowing capabilities.

Sobti said the bank had hardly used the dispensation after demonetisation or after the Kerala deluge as well.

The bank continues to be in the race for IL&FS' securities arm and has the advantage of being the only one having regulatory approvals, Sobti said.

The takeover of microlender Bharat Financial is expected to get all the remaining regulatory approvals from the NCLT and the monetary authority by February.

The bank scrip saw some buying after the earnings and closed 1.47 percent up at Rs 1,600.80 a piece on the BSE as against a 0.64 percent gain on the benchmark.

 

 

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