IGI Logo

All-round solid performance yet again

Indian Bank posted an impressive all-round performance once again, delivering a strong 41% PAT at Rs24bn/RoA of 1.2%, backed by stable margins, lower staff costs, and LLP. The bank has maintained a fine balance between growth and margins, underpinning its focus on delivering growth with profitability. Headline asset quality continues to improve, with GNPA ratio down to 3.8% (vs 4% in Q4FY24) and NNPA ratio at an industry-low of 0.4%. The bank continues to carry healthy specific PCR @90%, which should protect its financials from any impact of the anticipated IRACP/ECL norms. Separately, the mgmt indicated that impact of the draft LCR guidelines shall be 4-5% for the bank, resulting in revised LCR of 115%, which is still higher than the regulatory requirement. The current MD’s term has been extended till Dec-24. We expect the bank to sustainably deliver healthy 1.2% RoA/17-18% RoE over FY25-27E; this coupled with healthy CET 1@13.4% provides comfort. We retain BUY with revised TP of Rs675/sh (from Rs650), valuing the bank at 1.2x Jun-26E ABV.

Healthy credit growth along with stable margins

Indian Bank reported healthy credit growth at 14% YoY/1.2% QoQ, mainly led by strong traction in the RAM segment. Within Retail, VF and mortgages were the primary growth drivers, whereas PL growth continued to drag. Gold loans too saw pick-up in growth, with a 10% YoY/11% QoQ growth, while the bank has implemented adequate measures to ensure asset quality. Deposits growth moderated to 9.6% YoY (declined 1% QoQ), leading to better LDR at 77% vs 75% in Q4FY24. This helped the bank maintain stable NIMs @3.4% amid cost pressure seen across the sector. The bank expects NIMs to remain healthy, given its focus on the RAM segment and higher share of the MCLR book which should benefit the bank during a rate reversal cycle. Separately, the management indicated that impact of the draft LCR guidelines could be 4-5% for the bank, resulting to revised LCR of 115%, which is still higher than the regulatory requirement.

Still holds the top spot with lowest NNPAs-highest specific PCR, among PSBs

The bank’s gross slippages were slightly higher at Rs19.6bn/1.7% of loans, due to seasonally higher agri and SME NPAs. However, higher recoveries/upgrades led to an 18bps QoQ decline in GNPA ratio to 3.8%. Indian Bank continues to report one of the lowest NNPA ratios, at 0.4%, and the highest specific PCR at 90%, among PSBs. Though there is some uptick in the SME – SMA 2 portfolio, as seen across banks, the management does not expect a new cycle of NPAs yet.

Indian Bank remains our preferred pick among PSBs

We revise up our earnings estimates by 4-7%, and expect the bank to sustainably deliver 1.2% RoA/17-18% RoE over FY25-27E led by healthy margins, PSLC fees/treasury gains, and contained opex. Higher CET 1@13.4% (1Q profit not built in) provides additional comfort. The current MD’s term has been extended till Dec-24. We retain BUY on the stock, raising our TP to Rs675/share (Rs650 earlier), valuing the bank at 1.2x Jun-26E ABV. Key risks: Macro-dislocation hurting the growth/asset-quality improvement trajectory, higher than expected standard provisions as per the new IRACP norms/ECL impact, and merger of any other PSB, given the bank’s otherwise strong fundamentals.

For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354