IndusInd Bank’s Romesh Sobti: We have seen significant recoveries in stressed accounts

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On Friday, BSE benchmark Sensex plunged over 434 points, while Nifty slipped below 11,200-mark as growth concerns overshadowed rate cut. Earlier in the day, the Reserve Bank of India cut interest rates for a fifth straight time by 25 basis points to 5.15 per cent, stepping up efforts to kick-start economic growth. In its fourth bi-monthly policy meet for FY20, the monetary policy committee cut FY20 GDP growth forecast sharply to 6.1 per cent from 6.9 per cent, taking into account the lower-than-expected growth rate in Q1FY20. Bank majors, including HDFC Bank (-2.8%), ICICI Bank (-3.1%), Kotak Mahindra Bank (-3.3%), State Bank of India (-1.7%) and Axis Bank (-1.8%) together dragged Sensex by over 340 points. All sectoral indices except BSE IT and Teck closed lower.

IndusInd Bank’s Romesh Sobti: We have seen significant recoveries in stressed accounts

 Excerpts from an interview with Romesh Sobti – Managing Director & CEO, IndusInd Bank

·       Mr Sobti mentioned that because of the heightened speculation and conjecture on a particular account – a housing finance company, the bank was obliged to inform the stock exchanges what was the actual exposure to the entity.

·       He added that one of their big initiatives was the provision coverage ratio (PCR) which had fallen after one large infrastructure relationship they classified as NPA (non-performing asset. INDUSINDBK made large provisions for it and the same was communicated to the market as well. Their aim is to take that PCR back to at least the 60s and there is a good beneficial impact that it has come as a consequence of the tax savings. A large part of tax savings will help them to raise the PCR and is expected to reflect from Sep-19 quarter itself.

·       He clarified that exposures in various sectors have remained constant. There has not been a residual loss because of so-called stressed account. In fact, there have been very significant recoveries in the stressed accounts. They were not stressed in their books as they are not overdue.

·       Mr Sobti said even though there has been some conjecture and speculation on the higher-margin businesses like a commercial vehicle or microfinance institutions (MFIs) these portfolios are performing very robustly and well up to their credit standards seeing no adverse trends.

·       He mentioned that the deposit growth has been strong in the last few quarters and has remained robust in this quarter because of the huge drive to raise retail fixed deposits.

·       Mr Sobti expects deposit growth to show the same trend as seen in the past since INDUSINDBK is getting Rs 50-60 bn of retail deposits every quarter.

 Consensus Estimate (Source: market screener website)

 ·       The stock price was Rs 1282/- as of close price of 04-10-19 and traded at 14x /11x /9x the consensus EPS for FY20E / 21E / 22E EPS of Rs 88/112/133 respectively. Consensus target price of ₹ 1807/- implies a PE multiple of 16x on FY21 EPS of ₹112/-