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Deposit growth gains further traction; loan growth recovers moderately

IndusInd Bank (IIB) released its quarterly update highlighting the key business numbers for 4QFY21. The following are the highlights:

* Total advances grew 3% YoY to ~INR2.1t. Sequentially, growth remains steady at 2.9% QoQ (similar to the growth witnessed in 3QFY21). The CD ratio narrowed to 83.2% v/s 86.6% in 3QFY21.

* IIB continued to show strong momentum in deposits – up 7.1% QoQ (+26.8% YoY) to ~INR2.6t. This was led by robust growth in CASA deposits to 10.8% QoQ (+31.3% YoY). The CASA mix, thus, improved by 130bp QoQ to 41.8%.

* Retail deposits and deposits from small business customers grew at 11.5% QoQ to INR958b. The bank remains focused on shoring up the retail deposit mix and is making consistent progress on this key objective.

* Valuation and view: Loan growth has been showing signs of revival over the past few quarters, while the deposit franchise is also improving steadily – led by robust growth in retail deposits. As a result, funding costs would continue to moderate, but margins are likely to remain in a narrow range as banks’ liquidity position continues to improve. IIB has guided for a restructuring book of ~1.8%; however, the recent spike in COVID-19 cases and lockdown in key districts could impact the collection efficiency, particularly in the MFI book. Therefore, we expect the credit cost to remain elevated as the bank endeavors to maintain a PCR in excess of 70%. Nevertheless, an improving operating performance would enable the bank to report healthy return ratios. Thus, we maintain Buy, with TP of INR1,300/share (1.9x FY23E ABV).

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