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Our view – Growth pangs emerge but growth guidance reiterated

Balance sheet growth – While the bank remains confident of meeting growth guidance, it will require a material pick up from current levels: Total loan growth amounted to 15% YoY. Within this, retail loans have grown 18% YoY whereas wholesale loans have grown 13% YoY. The bank was cautious on microfinance and vehicle loan growth due to the election, although a pickup has already been seen. There has been an intentional slowdown in personal loans and credit cards. The bank, however, remains confident of meeting its full year loan growth guidance of 18-22% range.

Asset Quality - There was a moderate rise in slippages with other retail joining vehicle finance and microfinance in adding to slippages: Gross NPA additions amounted to Rs 15.36bn for 1QFY25, translating to an annualized slippage ratio of 1.8% for the quarter. Gross NPA additions had amounted to Rs 14.28bn during 4QFY24. The segmental breakup of gross slippages was: Vehicle finance – Rs 6.60bn, Microfinance – Rs 3.38bn, Corporate - Rs 0.48bn, Other retail – Rs 4.90bn. Management stated that some of the rise in retail slippages is seasonal. Provisions were Rs 10.50bn, up by 16.8% QoQ and 5.9% YoY, translating to annualised credit cost of 121 bps. The full year credit cost is expected to be in 110-130 bps range.

Net Interest Margin - NIM remained broadly stable sequentially with management reiterating prior guidance: NIM was at 4.25%, down -1bps QoQ and -4bps YoY. The penal interest circular impact was Rs 0.3bn, which is a run rate impact. The rise in cost of deposits remained under control at 5 bps QoQ despite the prevailing liquidity conditions. The decline was on account of changing mix of term deposits and deposit repricing. The expectation for NIM remains 4.2-4.3%

We maintain a relatively cautious ‘ADD’ rating on IIB with a revised target of Rs 1675: We value the bank at 1.6x FY26 P/BV for an FY25E/26E RoE profile of 14.8%/15.1%. We had downgraded the stock on 7th Jan 2024.

Other Aspects (See “Our View” above for elaboration and insight)

* Opex control: Total cost to income ratio at 50.0% was up by 110/409bps QoQ/YoY and the Cost to assets was at 3.0% down/up by -7/19bps QoQ/YoY

* Fee income: Core fee income to average assets was at 1.8%, down -3/-4bps QoQ/YoY

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