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Initiated as BUY in March 2022, INBK multiplies nearly 3.8x but still has material upside

Asset Quality – Slippages rise sequentially due to seasonality but credit cost to remain on a downward trend: Gross NPA additions amounted to Rs 19.56bn for 1QFY25, translating to calculated annualized slippage ratio of 1.46% for the quarter. Gross NPA additions had amounted to Rs 12.68bn during 4QFY24. Recoveries in 1Q were Rs 12.9bn and the management has guided for total recoveries of Rs 70bn in FY25 including AUC recovery of Rs 20bn. Provisions were Rs 12.6bn, up by 0.9% QoQ but down by - 27.7% YoY, translating to calculated annualised credit cost of 97bps. The management has stated that the credit cost at 71bps (assume specific) is marginally down sequentially and they expect it to decline further from current levels.

Net Interest Margin - Margin remained stable on sequential basis and are also expected to broadly remain stable: The whole bank NIM was at 3.44%, flat QoQ but down -12bps YoY. The cost of deposits in 1Q was at 5.05%, up by 4bps QoQ and 45bps YoY and the management expects it to further inch up by 3-5bps. The share of MCLR linked loans is 61% of the total advances and hence the management expects that the NIMs would be stable around current levels.

Balance sheet growth – Loan growth was within the guided range: Gross advances grew 1.0%/12.5% QoQ/YoY, driven sequentially by Agri, Retail and Overseas Loans. The current YoY growth was inline with the management’s earlier guidance of 11-13% of YoY advances growth.

We maintain ‘BUY’ rating on INBK with a revised price target of Rs 715: 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 280%. We value the bank at 1.3x FY26 P/BV for an FY25E/26E RoE profile of 15.6/16.1%.

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

* Opex control: Total cost to income ratio at 44.3% was down/up by -368/9bps QoQ/YoY and the Cost to assets was at 1.8% down by -24/-4bps QoQ/YoY

* Fee income: Core fee income to average assets was at 0.4%, down/up -10/2bps QoQ/YoY.

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