IndusInd Bank's results is a wake-up call for all doomsday experts who believed the economy will ground to a standstill
The general feeling in the market was that banks would be affected by demonetisation which had frozen the demand for funds. Doomsday experts believed the economy will ground to a standstill with no transaction or business taking place both in urban or rural India.
But IndusInd Bank's result is a wake-up call for all those who assumed the worst.
Here are five ways in which IndusInd Bank beat demonetisation:
- Credit growth: In his interaction post results, Romesh Sobti, CEO of IndusInd Bank, said that people assumed that loan growth would slow down basing the fact that vehicle finance and microfinance had slowed down. Vehicle finance, apart from the first two weeks, saw robust growth; even on a quarter-on-quarter (QoQ) basis disbursements increased by 12 percent, Sobti said. Also, the microfinance segment, which is a reflection of rural economy, normalised after the first four weeks. Sobti also pointed out that there has been no slowdown in gold loans, used-vehicle loans, commercial vehicle loans and more importantly loan against property (LAP) -- the one segment which was literally written off by analysts and commentators. IndusInd Bank saw its loan book increasing by 25 percent. Growth was witnessed both in corporate and retail segment.
- Deposit growth: Direction of deposit growth was perhaps the only fact that everyone got right. It was an accepted fact the note ban would result in deposits of high denomination old notes. Deposits for IndusInd Bank grew by 38 percent to Rs 1.19 lakh crore, thanks to a 56 percent rise in savings account deposits helping the bank lower its cost of funds.
- Cross-selling: Rather than cribbing about higher deposits, IndusInd Bank decided to use the opportunity by cross-selling financial products to its depositors. With interest rates going down, it was not too hard to sell higher fee-based products. During the quarter the bank collected 44 percent higher fee income which reached Rs 181.2 crore. This segment is expected to contribute more going forward.
- Repayment: An advantage of demonetisation that has been witnessed by other banks also is that defaulters have been forthcoming in repaying their loans, albeit in cash. Sobti pointed out that delinquencies and slippages in consumer segment actually came down because repayments came in faster. The bank saw repayments even in accounts that were written off. Slippages in the bank's restructured book were stable as borrowers made prompt payment.
- Structural benefit: Unlike other banks IndusInd Bank had the benefit of having 70 percent of its loan book on fixed rate. In a falling interest rate scenario, net interest income (NII) and net interest margin (NIM) of the bank remained intact. Further, the bank with a current account and savings account (CASA) rate of 37.1 percent helped it lower its cost of fund by 25 percent on a QoQ basis.
Romesh Sobti went on to add that the benefits of demonetisation would outweigh the cost, a statement which will gladden the hearts of worrywarts. Markets have taken IndusInd Bank’s results well pushing the stock nearly 6 percent higher and the banking index 2.5 percent higher.