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Loan growth moderates; Sharp rundown in deposits
IndusInd Bank (IIB) has released its business update for 4QFY20. Below are the key highlights:
* Advances growth moderated sharply in 4QFY20; total advances grew 12.6% YoY/1.2% QoQ to INR2.1t, impacted by the COVID-19 outbreak and imposed lockdown.
* Deposit base for the bank declined 6.6% QoQ (+3.8% YoY) to INR2.0t. CD ratio now stands at 103.8%. Retail deposits and deposits from small business customers (in accordance with the LCR) grew 34% YoY (+2.7% QoQ) to INR625.9b.
* CASA ratio for the bank declined 264bp QoQ/189bp YoY to 40.5%. This implies a decline of 10.8% QoQ/2.5% YoY in CASA deposits, primarily due to the withdrawal of government deposits.
* LCR ratio for the bank stood at 112.2% (v/s 113.6% in 3QFY20).
* Valuation and view: IIB’s stock price has corrected steeply recently owing to concerns regarding asset quality and strength of funding franchise as the bank witnessed a sharp rundown in its deposits balance. The COVID-19 outbreak has further impacted growth/asset quality prospects in select business segments. We, thus, estimate credit cost to remain elevated over the next few quarters while business growth should moderate. Further, we estimate IIB to deliver FY21E RoA/RoE of 1.6%/13.7%. Maintain Buy with an unchanged TP of INR800 (1.3x Sep’21E ABV).
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