Slight NPA increase for IndusInd acceptable: Analysts

IndusInd Bank's net profit rose 25 percent to Rs 620 crore in the January-March quarter from Rs 495.3 crore in year-ago period. During the period, its net interest income (NII) increased 37 percent to Rs 1268.2 crore from Rs 925.1 crore on annual basis.A marginal rise in provisioning and a slight deterioration in gross non-performing loans (NPL) of IndusInd Bank was expected given the economic environment and should be taken positively as the corporate portfolios of all the banks are under considerable pressure, says Hemindra Hazari, Independent Market Expert. Kaitav Shah of SBICAP Securities says that the deterioration in gross and net NPLs slightly negative than expected, but there seems to be no cause of worry as IndusInd Bank is a robust franchise.   The credit assessment is better and there is no need to worry over the higher corporate loan growth, adds Shah.Below is the transcript of Hemindra Hazari and Kaitav Shah’s interview with Ekta Batra and Surabhi Upadhyay on CNBC-TV18. Surabhi: IndusInd Bank, the market usually expects absolutely stable asset quality, at least from this one lender, but we are seeing a marginal rise in provisioning an a very slight deterioration or a slight dent in the gross non-performing loan (NPL) number. How would you read it? Hazari: This could be expected because economic environment is such that even new private sector banks which are bound to report very good asset quality numbers are bound to get impacted by that. So, I do not think the markets should be unduly surprised that there has been a marginal deterioration in asset quality. It should be very positively taken that there has not been a significant deterioration in asset quality because corporate portfolios of all banks are under considerable pressure in these times. Ekta: IndusInd Bank, in terms of the internals would you like to hear about the internals of the asset quality and if so, what within the internals would you look forward to? For example, the last quarter, they managed to maintain their gross NPLs to sub-1 percent, but there was sale of loans to asset reconstruction companies that took place last quarter. So, would you possibly wait to hear more management commentary and then decide whether the numbers are good or bad in terms of gross NPLs? Hazari: Most definitely. For any bank which is reporting numbers, one has to probe more deeply apart from the disclosure on the NPA front. For example, in this case, whether there is any further sale to asset reconstruction company (ARC), 5:25 scheme also. These things we will have to always wait and see when we get further disclosures. I would also like to see what is the kind of growth rate they have reported in their loans to large corporates which have been growing quite aggressively in earlier quarters because in this type of environment, we want to really know which are these corporates that the bank has been lending to. Surabhi: Marginal issues or questions perhaps on the asset quality with provisions rising quite decisively and in absolute sense the gross non performing loans (NPLs) have increased 13.9 round that of to 14 percent. The net NPLs are up 17 percent how would you read the asset quality picture? Kaitav: We have been expecting some amount of marginal deterioration. I would say that it is slightly more negative than that but having said that it has a robust franchisee. I don’t think that there is any cause of worry. The numbers are more or less, I would say inline, they have done decently well. It is a resilient bank and going forward, about loan growth etc we will continue to want more numbers on those parameters as well. Ekta: What would you like to hear from the management? Last quarter their corporate slippages were higher and like we mentioned around Rs 42-50 crore in terms of the sale of loans to asset reconstruction companies as well? Kaitav: What I would like to hear is whether the pain one is over or not. We give management fair amount of credibility on best judging the asset quality. So, that is one thing that we will be looking out for. Surabhi: Also come in on the point that Hemindra Hazari was just making while it is very good to see these very healthy numbers in terms of loan growth and advances that was as high as 29-30 percent for IndusInd Bank in the previous quarter but will the market now start looking at more granular details in where that loan growth is coming in? That is exactly that point that Hemindra was making because we are overall in a stressed corporate environment and also how would you look at not just the advances number also as Ekta mentioned if you could give us specific number sales of loans to asset reconstruction companies it was around Rs 50 crore last time what is the number that you think you will be comfortable with this time around? Kaitav: That number I think would not be material but in terms of loan growth let me just highlight that they have also been growing their consumer book very well, one is that. Second, if you notice their corporate loans are more or less working capital loans they are not project or term loans, largely which have not come under stress so far. We give them due credit on the fact that credit assessment is definitely better. So we will not be unduly worried over the higher corporate loan growth. In fact if anything they are gaining market share at the cost of some of the PSU banks.