Higher provisioning impacts IndusInd Bank Q2 net profit

IndusInd Bank Ltd. reported a lower than expected net profit of Rs. 920.25 crore for the second quarter ended September 30, 2018 as compared with Rs. 880.10 crore in the year-earlier period on account of one-off prudential contingency provision of Rs. 275 crore.

According to analysts the Rs. 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 Rs. 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 Rs. 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.

During the quarter the bank reported total business of Rs. 3,31,363 crore as against Rs. 2,64,622 crore, up 25%. Net interest income grew by 25% to Rs. 2,203 crore as compared to Rs. 1,821 crore in the same period last year. Operating profit was at Rs. 1,992 crore as compared to Rs. 1,634 crore in the same period last year, up 22%.

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