In 3QFY19, Indian bank’s total advances grew by 15% YoY (missing CSEC estimate of 18%) to INR 1.77tn. The domestic loan book grew by 15.6% YoY (2.8% QoQ), driven by growth in RAM (Retail, Agricultural and MSME) segment, which was up by 36% YoY (2.8% QoQ). However, Corporate & Commercial segment de-grew by 4.7% YoY. Management has guided loan book growth of ~20% in FY19E and 15-18% in FY20E, driven entirely by the RAM segment. Overall deposits recorded moderate growth of 9.4% YoY (missing CSEC estimate of 10.6%) and stood at INR 2.26tn, led by growth in term-deposits (11.2% YoY). CASA however, grew at slower pace of 6.4% (1.8% QoQ). Savings grew by 8.6% YoY; while demand deposits de-grew by 3.9% YoY. Consequently, CASA ratio declined to 35.7% vs 36.7% in 3QFY18.
OutlookSuperior asset quality amongst its PSU peers, strong loan growth trajectory coupled with lower costs and margin expansion paints a positive outlook for the bank. Though slippages were higher this quarter, which limited the expansion in margins (due to interest reversal), we gain comfort from healthy cash recoveries and >60% provision coverage. Hence, we maintain a BUY rating with a target price of INR 251, assigning a P/ABV of 0.8X FY21E.
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