IGI Logo

Material rise in cost of deposits indicative of wholesale deposit dependence

Result Highlights

? Asset quality: Gross slippages amounted to Rs 14.67bn (annualized slippage ratio of 2.2%) and recoveries and upgrades amounted to Rs 5.28bn ? Margin picture: NIM at 4.27% inched up 3 bp QoQ aided by a sequentially higher loan to deposit ratio ? Asset growth: Advances grew 4.9%/19.3% QoQ/YoY driven sequentially by Small corporates and select retail segments ? Opex control: Total opex rose 3.5%/17.3% QoQ/YoY, employee expenses rose 8.8%/28.9% QoQ/YoY and other expenses rose 1.6%/13.4% QoQ/YoY ? Fee income: Core fee income rose 3.7%/27.8% QoQ/YoY driven sequentially by Trade and remittance and Loan Processing Fees

Our view – Material rise in cost of deposits indicative of wholesale deposit dependence

While NIM stood at 4.27% for the quarter, management re-iterated prior guidance of 415-425 bps: The relatively conservative guidance is likely a tacit acknowledgement that liability retailisation is still work-in-progress. Share of LCR retail deposits is still 42.4%, which is materially lower than key private sector peers. Cost of deposits jumped 37 bps QoQ in a sign of things to come, with management conceding there could be a similar rise in 4Q. What saved the day from NIM was a 151 bps rise in loan-to-deposit ratio to 83.9%, a non-structural factor aiding margin.

Gross slippage, while materially lower than pandemic peak levels, was still somewhat on the higher side, being contributed to by the CV and MFI books:There were some elevated slippages in the CV book due to some duties being rolled back in the state of Orissa. Microfinance NPLs have also moved up due to stress in the Eastern region and there would be another quarter of some pain before things stabilize. The outstanding contingent provisions amounted to Rs 21.92bn, with the bank having utilised Rs 11.36bn of contingent provisions so far. Outstanding loan-related provisions were 130% of GNPA.

Growth has returned for IIB, with management now guiding for 20-25% loan growth, going forward: Retail book has grown 5% QoQ and within retail, non-vehicle loans have grown 6% QoQ. Vehicle finance had its best ever quarter with a disbursement of Rs 127.13bn, up 19% QoQ with the book having grown 7% QoQ. The microfinance book has grown 2% QoQ. Corporate book has grown 4% QoQ driven by the small corporate book, which was up 11% QoQ driven by continuous scale up of SME business.

We maintain ‘Buy’ rating on IIB with a revised price target of Rs 1495: We value the bank at 1.9x FY24 P/BV for an FY23E/24E/25E RoE profile of 13.8/14.0%/15.2%.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaime