IndusInd Bank's decent quarterly performance wasn't recognised because of Streets' overt concern about its telecom exposure. While that remains a factor to monitor, we expect the bank to step up provisions for the same as it is otherwise back on a solid track. Although restructuring is a tad on the higher side, asset quality has held up well. The bank has a provision cover of 72 percent, and has provided conservatively against unsecured retail and MFI loans, and carries buffer provisions.
Loan growth has been soft as the bank improved underwriting standards to bring more granularity to assets, and this is reflected in the decline in the ratio of risk-weighted assets. With the economy picking up steam, the bank expects growth in the range of 16-18 percent in the next couple of years.
Growth is possible due to the comfortable capital adequacy ratio and the right kind of liability. The CASA share is at a healthy 42 percent, and the bank has been steadily dropping rates without seeing any reversal inflows. It has also managed to bring about reduction in the cost of deposits.
The steady decline in cost of funds coupled with a high yielding retail book spells good news for the interest margin. Seen in this context, the valuation is still undemanding, leaving room for rerating.
Moneycontrol.com’s Madhuchanda Dey shares her view on the stock.
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