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Improving visibility towards >5% PPoP/loans, >1.8% RoAs and 15% RoEs

Our interaction with the management of IndusInd Bank (IIB) suggests that the macro uncertainties / volatility amidst current geopolitical situation and prolonged supply disruption may pose some risk to financing demand in gems/jewellery (Russia accounts for ~30% of global diamond output) and vehicle financing (due to rise in fuel prices). Nonetheless, with disbursements reaching pre-covid levels in most retail products, revival in MFI disbursement and encouraging growth in corporate lending will lead growth towards IIB’s 2-year credit growth target of 16- 18%. With respect to MFI portfolio, independent review findings are in line with affirmations made earlier and incremental provisioning impact is a mere 5% PPoP/loans, >1.8% RoAs and 15% RoEs by FY23E. Maintain BUY with an unchanged target price of Rs1,420. Key risks: 1) lower than estimated growth, and 2) credit cost not normalising soon.

Geopolitical situation creates macro uncertainties/volatility; may pose risk to financing demand in gems/jewellery and vehicle financing segments:

IIB is continuously assessing the situation arising from current geopolitical uncertainties. Rise in oil prices, commodity prices, exchange rate volatility creates macro volatility and it is difficult to gauge at this juncture the first-order or secondorder impact of the same on growth or asset quality.

Russia accounts for ~30% of global diamond output and is a major supplier to India. Shortage of diamond import can potentially impact India’s export of cut and polished diamonds and turnover of many entities may be hit. This will also lower working capital financing requirement and drag growth in the gems and jewellery segment.

We expect impact on bilateral trades globally, and disruption in demand, supply and payment mechanisms to have some effect on forex-related revenues. However, exchange rate volatility may provide support in the interim on derivative volumes

Findings of independent review of MFI portfolio are in line with earlier affirmations; incremental impact of a mere Rs135mn (<1bps of loans): Findings of an independent review conducted by Deloitte Touche Tohmatsu India LLP (Deloitte) for IIB’s microfinance (MFI) portfolio were in line with the affirmations earlier made by the bank based on its own internal review and there were no significant incremental adverse findings. Potential implications of the review, including lapses in product execution and client consent recording, in terms of income recognition and provisioning requirement, is a mere Rs135mn (not even 1bps of advances and will be provided for, in Q4FY21). Some areas for process improvement and oversight of correspondent activities of the subsidiary, especially in technology and control, have been highlighted in the review and the management is appropriately addressing the same

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