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Margins moderate 15bp QoQ; asset quality outlook steady

* Indian Bank (INBK) reported a PAT of INR14.5b (up 47% YoY; 11% miss), supported by 29% YoY growth in NII, while provisions came in higher as the bank created additional standard asset provisioning to strengthen its balance sheet. Margins moderated 15bp QoQ to 3.6%. Loan growth came in healthy at ~15% YoY, while deposit growth stood modest at 4%.

* GNPA/NNPA ratio improved 58bp/10bp QoQ to 5.95%/0.9%. This was primarily driven by the increase in recoveries and upgrades, despite elevated slippages of ~INR25b (2.6% annualized), which were influenced by a surge in MSME slippages. However, SMA book stands controlled at 0.54% of loans.

* We estimate FY25 RoA/RoE at 1.1%/17.1% and reiterate our Buy rating on the stock.

Healthy traction in CASA deposits; SMA book moderates to 0.54% of loans

* Indian Bank (INBK) reported a PAT of INR14.5b (up 47% YoY; 11% miss), supported by healthy NII growth even as provisions stood higher at INR26b. NII was flat QoQ (up 29% YoY) to INR55.1b (3% miss), due to 15bp QoQ moderation in margins to 3.59%. For FY23, NII/ PPoP/PAT rose 21%/20%/34% YoY to INR202.3b/INR152.7b/INR52.8b.

* Fee income grew 12% YoY to INR9.0b, while total ‘other income’ grew 27% YoY to INR20b. This was aided by higher recovery of bad debts of INR8.1b in 4QFY23 v/s INR4.3b in 3QFY23. Treasury income stood modest at INR820m.

* Opex grew 13% YoY (up 11% QoQ), fueled by 11% QoQ increase in employee expenses as the bank provided INR1b toward wage revision. Consequently, PPoP rose 47% YoY (flat QoQ) to INR40.2b (in line). Thus, the C/I ratio increased to 46.5% in 4QFY23 from 43.7% in 3QFY23.

* On the business front, gross advances grew 14% YoY (up 4.9% QoQ) to ~INR4.7t, led by healthy growth in Retail (up 4.4% QoQ), Corporate portfolio (up 6.1% YoY), and International Advances (up 7.9% QoQ). Deposits increased ~4% YoY and QoQ each, while CASA deposits grew 8% QoQ. Thus, the CASA mix improved 159bp QoQ to ~42%.

* Asset quality improved QoQ, led by healthy recoveries/upgrades (INR39b) despite slippages increasing 95% QoQ to INR25.7b (~2.6% annualized). GNPA/NNPA ratio thus improved 58bp/10bp QoQ to 6.0%/0.9%. PCR stood steady at ~85.7%.

* SMA 1/2 book (>INR50m) stood at 0.54% v/s 0.77% in 3QFY23. The total restructured portfolio though stands elevated at 2.5% of loans (v/s ~3.4% in 3QFY23). The bank's collection efficiency in the restructuring book is 92%, while the bank’s overall efficiency stands at 95%.

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