IndusInd Bank Ltd. reported a lower than expected net profit of ₹920.25 crore for the second quarter ended September 30, 2018 as compared with ₹880.10 crore in the year-earlier period on account of one-off prudential contingency provision of ₹275 crore.
According to analysts the ₹275 crore is conservative provisioning made by the bank towards its exposure to Infrastructure Leasing & Financial Services Ltd. (IL&FS).
Though the bank had not named the borrower or its total exposure to IL&FS, analysts have estimated it to be upwards of ₹1,300 crore.
Without naming IL&FS the bank, in a statement said, “advances granted to various companies belonging to a group in the infrastructure sector, against certain identified cash flows and pertaining to specific assets, are classified as ‘standard’ as at September 30, 2018 in compliance with RBI master circular on prudential norms….
Management changes
“Certain governance and management changes have taken place in this group and measures to turn it around through a resolution plan are under way. [The] bank’s management is monitoring the developments and implications of the resolution plan,” it said.
“In the interim, as a prudential measure, the bank has made a contingent provision of ₹275 crore on these ‘Standard’ assets which is included under provisions (other than tax) and contingencies during the quarter ended September 30, 2018,” it added.
Romesh Sobti, MD & CEO, IndusInd Bank, said: “Like past quarters, this quarter too, the Bank has maintained its trajectory of stable performance, driven by a strong focus on value creation through risk mitigation and strict adherence of prudent banking. We are happy to post yet another consistent quarter.”
Lower than estimates
However ICICI Securities analyst Kajal Gandhi said, “IndusInd Bank’s quarterly PAT was lower than estimates largely owing to higher than expected contingent provisioning. Core operational earnings were healthy.”
ICICI Securities, in a note, said IndusInd Bank’s business growth in the second quarter remained strong.
“Advances increased higher than our estimate at 32.4% YoY. Margins stayed at strong levels of 3.8%. Asset quality stayed steady on a QoQ basis. GNPA ratio improved to 1.09% vs. 1.15% QoQ, while NNPA ratio declined by 3 bps QoQ to 0.48%,” it said.
“The bank made contingency provisions of Rs 275 crore towards exposure to an Infrastructure company. This account is currently standard. Owing to this provisions the total provisions came in at Rs 590 crore versus our estimate of Rs 315 crore. This impacted bottom-line,” it added.
However, Sanjiv Bhasin, Executive Vice President, IIFL Securities said, “Results are in line with expectations. There is strong growth in both retail and wholesale banking. Higher than expected provisioning is actually prudent management in the current scenario.”
During the quarter the bank reported total business of ₹3,31,363 crore as against ₹2,64,622 crore, up 25%. Net interest income grew by 25% to ₹2,203 crore as compared to ₹1,821 crore in the same period last year. Operating profit was at ₹1,992 crore as compared to ₹1,634 crore in the same period last year, up 22%.
