Moneycontrol
Oct 12, 2017 09:09 PM IST | Source: Moneycontrol.com

IndusInd aims to grow microloan book to 6% with Bharat Fin merger; deal likely on Saturday

The Bank’s board members will meet on Saturday, October 14, and most likely announce the merger deal with Bharat Financial

Beena Parmar @BeenaParmar
 
 
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Private sector lender IndusInd Bank aims to grow its microfinance portfolio to 5-6 percent in three years, likely to be boosted by the merger with microfinance player Bharat Financial Inclusion.

The Bank’s board members will meet on Saturday, October 14, and most likely announce the merger deal.

Currently, IndusInd Bank’s microfinance book is a little less than Rs 3,000 crore, which is 2.5 percent of the total loan book.

“We plan to take our microfinance book to about 5-6 percent over a period of three years…We have strong faith in the microfinance business and want to grow in it organically and inorganically,” said Romesh Sobti, Managing Director and CEO of the bank.

The two entities entered into discussions earlier this year and announced its exclusive talks in September to consider a merger.

“Its exclusivity arrangement for a potential merger with the microlender is still on… All I can say is that it will happen sooner than later. As of now, we are still in that standstill, confidentiality and exclusivity arrangement,” Sobti added without revealing the tenure of the arrangement.

Given that the cash-heavy microfinance industry has suffered in collections and business growth, post demonetisation that was announced in November last year, Sobti reaffirmed his confidence in the sector.

“Demonetisation is like a black swan even. We are not deterred by events that happen in the market because of a one-time event. The industry has bounced back to almost normal levels of disbursements and more than normal levels of collections…We don’t assess the player but the industry,” he said.

IndusInd Bank results

A robust loan demand driven by growth in commercial vehicles, and a dip on cost of funds due to a near doubling of its CASA or current and savings deposits boosted IndusInd Bank's net profit by 25 percent to Rs 880.10 crore for the three months ending September, 2017.

The bank’s CASA ratio increased to 42.26 percent as against 36.53 percent a year ago. Sobti said the bank has already reached March 2020 target of 40 percent in its CASA deposits and will review whether it should continue to drive the retail deposits.

The Hinduja Group promoted bank said its mainstay commercial vehicle loan book grew 25 percent helped its loan growth at 24 percent while its CASA share helped deposits rise 26 percent boosting its margins at 4 percent, up from 3.97 percent a year ago.

“Vehicle financing is about Rs 35,000 crore at present. The growth we are seeing in non-vehicle is also robust with 25 percent growth… disbursements have increased, demand is strong, freight rates have firmed up. So we will have better days ahead for the retail book,” Sobti noted.

Currently, retail and wholesale loans constitute 40 percent and 60 percent of its loan book, respectively.

The mid-sized bank is looking to reach a 50-50 wholesale-retail constitution by March 2020, Sobti said.

Asset quality

Of the total provisions of Rs 293.7 crore, the bank took a Rs 36 crore hit on its balance sheet due to its exposure to six of the 28 stressed accounts identified by the Reserve Bank of India in a second list that may need to be referred for insolvency proceedings.

Additionally, it has set aside Rs 18 crore towards it microloan book.

The provisions increased from Rs 213.9 crore year-on-year, while sequentially, it has fallen from Rs 310 crore.

Gross non-performing assets remained largely unchanged at Rs 1,347 crore. Gross NPAs as a percentage of total loan book fell to 1.08 percent from 1.09 percent in the quarter-ended June, while net NPA ratio remained stable at 0.44 percent.
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