Deposit figures shot up since the announcement of Yes Bank moratorium: Romesh Sobti, IndusInd Bank

Update on the Indian Equity Market:

Markets seesawed the entire session after a one day break as Nifty closed marginally lower at 10,448. The increasing number of virus infections in the country has created uncertainty over the near term outlook for companies as many states are rushing to close public places to control the spread of the virus. Among the Nifty 50 stocks, YESBANK (36.7%), ZEEL (7.5%) and INFRATEL (6.6%) were the highest gainers whereas GAIL (-10.2%), TATASTEEL (-7.8%) and TATAMOTORS (-6.9%) were the top losers. Within the sectoral indices, MEDIA (1.7%), PVT BANK (0.4%) and FIN SERVICES (0.2%) were few of the gainers while PSU BANK (-3.9%), REALTY (-2.7%) and METAL (-2.1%) were the top losers.

Excerpts from an interview with Mr Romesh Sobti, MD & CEO, IndusInd Bank published in CNBC TV-18 on 9^th March 2020:

• IndusInd Bank has deferred its plans to raise funds through additional tier-1 (AT 1) bonds after a write-down in the AT1 bonds of Yes Bank under the restructuring plan. The bank’s board meeting that was scheduled for 9^th March 2020 has also been deferred.  On this development, Mr Sobti said that the bank does not need capital on an urgent basis. He believes that the bank still has got enough fuel in the tank for the next 2 years for loan growth.
• He said that the capital adequacy ratio of the bank is well beyond 15 percent and another 1 percent to come in from the residual preference share allotment to the promoters as a consequence of the Bharat Financial Inclusion merger.
• He further said that they did not defer capital raising due to fear around AT1 bonds. The bank decided to defer the meeting as there is a lot of dust flying around the Yes Bank issue and IndusInd bank is still above the threshold level where the board is comfortable.
• On the write-off of AT1 bonds, he said that the last word is not yet out on the fate of the bonds. He is waiting for the final resolution plan before concluding his remarks.
• When asked about the Yes Bank fiasco, he said that the moratorium is a standard process that happens whenever this sort of restructuring or merger takes place. He said that the moratorium is going to be lifted sooner than later in the coming 30 days period.
• Commenting on the behaviour of depositors since Yes Bank moratorium was announced, he said that the deposit figures of IndusInd have shot up since the announcement. As a result, the bank is carrying a huge amount of excess liquidity.
• When asked if they would be interested in buying 5 percent stake in Yes Bank if they were approached by SBI, Sobti said that it is a very attractive proposition under current valuations.

Consensus Estimate: (Source: market screener website and investing.com websites)

• The closing price of IndusInd Bank was ₹ 845/- as of 11-March-2020.  It traded at 1.6x/ 1.4x/ 1.2x the consensus book value estimate of ₹ 514/ 613/ 728 for FY20E/ FY21E/ FY22E respectively.
• The consensus target price for IndusInd Bank is ₹ 1,660/- which implies a PB multiple of 2.3x on FY22E BV of ₹ 728/-.