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Our view – Declining credit cost, stable margin and reasonable growth keep us bullish

Unlike most other banks, INBK is looking forward to credit cost decline owing to healthy upfronted provisioning: Management stated that the specific credit cost would decline from the 77 bps registered in FY24. This is expected given Net NPA has declined from 0.9% to 0.4% and the SMA book is also small. For the quarter, the annualised gross slippage ratio of 1.1% was well under control.

Margin expanded slightly on sequential basis, while management guided for broadly stable margin: For the quarter, yield on advances was up 3 bps QoQ to 8.81% while Yield on investment was up 8 bps QoQ to 6.88%. Management stated that margin can be in a range of 3.4-3.5% plus or minus 10-15 bps. It may be noted that the bank is conservative with its margin guidance, given that it had guided for sustenance of FY23 domestic margin of 3.41% and delivered 3.54% for FY24.

Loan growth was slightly slower than the system but there is no major challenge here: Advances are up 13% YoY while total deposits are up 11% YoY. The incremental CD ratio was 90% for FY24 while the outstanding CD ratio stands at 77-78%. The bank wishes to plan in a similar way going forward. Furthermore, there is excess SLR worth Rs 440bn, which the bank wants to redeploy towards credit as it is higher yielding.

We maintain ‘BUY’ rating on INBK with a revised price target of Rs 675: We initiated on INBK with BUY, in our report released in March 2022, and as only our 3rd PSB pick, as our thumbs up to the PSU bank theme. Since then, INBK has returned 245%. We value the bank at 1.2x FY26 P/BV for an FY25E/26E RoE profile of 15.3/15.9%.

Result Highlights (See “Our View” above for elaboration and insight)

Asset quality: Gross NPA additions amounted to Rs 12.68bn (annualized NPA addition ratio of 1%), while recoveries and upgrades amounted to Rs 8.98bn

Margin picture: Domestic NIM at 3.52% was up 3bps QoQ, driven by increase in yield on advances and yield on investments

Asset growth: Gross advances grew 4.7%/12.7% QoQ/YoY, driven sequentially by Corporate, Agri and Retail Loans

Opex control: Total opex grew 9.8%/13.9% QoQ/YoY, Employee Exp. grew 12.7%/18.6% QoQ/YoY and other expense rose 4.4%/5.8% QoQ/YoY

Fee income: Core fee income rose 13.8%/6.1% QoQ/YoY, driven higher sequentially by growth in Loan Processing Charges and Misc. fee income

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