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Growth outlook steady; RoA to reach sustainable ~2% mark

Multiple levers to enable 22% earnings CAGR over FY24-26E

* IIB has been delivering consistent performance with both asset quality and return ratios improving steadily. The bank is well poised to report further improvement in operating performance as all key vectors (credit cost, margins & opex) continue to move in the right direction, unlike for most other banks.

* The steady loan growth (of 19% CAGR over FY24-26E) and a more favorable asset mix toward retail will continue to support margins, especially with the shift in the interest rate cycle. ? The bank aims to improve upon its CASA mix to >45%, while increasing the mix of retail deposits to 45-50% of the overall deposits.

* Asset quality ratios have improved, while continued moderation in slippages, dissolution of restructured assets (have declined to 0.5% vs peak of 3.6% in 2QFY22), and contingency buffer of 0.5% of loans provide further comfort.

* IIB is well capitalized with CET-1 of 16.3% and any further capital infusion by promoters to increase the stake in the bank would further aid capitalization levels. We estimate IIB to report 22% earnings CAGR over FY24-26E, resulting in a RoA/RoE of 2.0%/17.3%.

* IIB remains our preferred BUY in the sector and we reiterate our BUY rating with a TP of INR1,900 (premised on 1.9x Sep’25E ABV).

Loan growth remains steady; estimate 19% CAGR over FY24-26E

IIB has reported steady growth in advances with the bank reporting 21% YoY growth in advances in FY23. This has been led by robust growth across both the Corporate as well as Consumer portfolio. The growth trend remains broadbased with the bank reporting steady 18% YoY growth in the Corporate portfolio and the Retail momentum holding strong at 25% YoY in 2QFY24. Besides healthy loan growth, the asset mix has been improving steadily with continued growth momentum in Vehicle financing, MFI, SME+ Mid-corporate, Mortgages, and Credit card segments. IIB has guided for 18-23% loan growth as a part of its PC-6 strategy (FY23-26) and we estimate the bank to deliver ~19% loan CAGR over FY24-26.

Liability franchise improving gradually; retail deposit mix up 300bp to 44%

IIB has been making efforts to strengthen its liability franchise, with continued focus on garnering Retail deposits. Under PC-6, the bank aims to focus on bringing up its CASA mix to >45% from its current 39%, thereby further strengthening the liability franchise. IIB aims to increase its retail deposit mix to 45-50% over FY23-26 from 44%. Over the recent years, deposit growth trailed loan growth even as the quality of deposits improved. The bank’s emphasis on deploying excess liquidity on the balance sheet has led to an increase of ~650bp in the CD ratio compared to FY21 levels. Incrementally, we estimate deposits to register a CAGR of 17-18% over FY24-26, while the bank maintains adequate liquidity on the balance sheet with LCR at 117%, which provides comfort.

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