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Initiated with BUY in March 2022, INBK nearly doubles

Result Highlights

* Asset quality: Gross NPA additions amounted to Rs 13.13bn (annualized NPA addition ratio of 1.2%), while cash recovery amounted to Rs 13.39bn

* Margin picture: Domestic NIM at 3.74% was up 54bps QoQ driven by a variety of factors, including lower interest reversals

* Asset growth: Advances grew 3.1%/12.8% QoQ/YoY driven sequentially by Overseas loans and Domestic Retail loans

* Opex control: Total opex grew 9.4%/18.4% QoQ/YoY, Employee Exp. grew 12.1%/27.1% QoQ/YoY and other expenses rose 5.1%/6.1% QoQ/YoY

* Fee income: Core fee income fell/rose -2.6%/5.9% QoQ/YoY, driven lower sequentially mainly due to lower Transaction and Misc. fees.

Our view – Initiated with BUY in March 2022, INBK nearly doubles

While there were some restructured book slippages, these were under control in the overall context: The slippages from the restructured book amounted to Rs 4.18bn. Total recovery for 9M, cash and otherwise, amounts to about Rs 65bn against guidance of Rs 80bn for the year. Provisions were Rs 25.16bn, up by 22.2% QoQ and 0.9% YoY. This included Rs 6.34bn worth of provisions made on the restructured book. The Covid restructured book amounted to about Rs 150bn.

Continued asset repricing, favourable business mix change and lower interest reversals all contributed to material sequential margin expansion: The share of fixed rate loans for INBK is low at 7-8%. The share of MCLR-linked loans is significant at 56%. The remaining loans are linked to the repo rate. MCLR loans reprice with a lag and hence, the repricing in 3Q was also material for INBK. Loan mix continues to evolve favourably for INBK. Interest reversal was Rs 1.4bn for the quarter compared with Rs 4.5bn for 2Q.

Sequential loan growth was driven by retail loans, with healthy contribution from nonhome loan categories, while deposit growth was a concern: Retail loans grew 4.3% QoQ. Home loans grew 3.5% QoQ, Auto loans grew 8.1% QoQ whereas Personal loans grew 13.9% QoQ, driven by digital lending. The share of auto loans and personal loans is 1.1% and 1.5% of total loan book, respectively compared with 12.7% for home loans. Overseas loans grew 4.0% QoQ. Total deposits grew 1.4% QoQ while CASA grew 0.1% QoQ

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We maintain ‘Add’ rating on INBK with a revised price target of Rs 345: We initiated on INBK with BUY, in our report released in March, as only our 3rd PSB pick. Since then, INBK has returned 90%. We had downgraded to ADD in our 3QFY23 Sector Preview. We value the bank at 0.8x FY24 P/BV for an FY23E/24E/25E RoE profile of 10.8/13.8/15.4%.