IndusInd Bank Ltd Quarterly Results Q3 FY 25 stock analysis

Home » Financial News Hotbox » Results » IndusInd Bank Ltd – Q3FY25 Result Update

Sector Outlook: Positive

Net profit falls 39% YoY, hit by provisions

In Q3FY25, the bank reported a Net Interest Income (NII) of ₹5,228 crores, declining 2.2% QoQ and 1.2% YoY, while Operating Expenses rose 1.3% QoQ and 9.1% YoY to ₹3,982 crores. Pre-Provision Operating Profit (PPOP) fell 10.9% YoY to ₹3,601 crores, and Net Profit stood at ₹1,402 crores, increasing 5.3% QoQ but down 39.1% YoY. Provisions rose significantly by 79.9% YoY to ₹1,743 crores but declined 4.2% QoQ. The CASA Ratio declined to 35.0%, and NIM dropped to 3.93% (down 15 bps QoQ and 36 bps YoY). Gross Advances grew 12.1% YoY to ₹3,66,889 crores, while Gross Deposits increased 11.0% YoY to ₹4,09,438 crores, though down 0.7% QoQ. Capital Adequacy Ratio (CAR) stood at 16.46%, declining 5 bps QoQ and 140 bps YoY. Asset quality weakened slightly, with Gross NPA rising to 2.25% and Net NPA increasing to 0.68%. Overall, the bank faced profitability challenges due to higher provisions and expenses, but loan growth remained stable.

Key Concall Highlights

The company aims for a Liquidity Coverage Ratio (LCR) of 48%-52% and a Loan-to-Deposit Ratio (LDR) of 88%-90%.
Net Interest Margin (NIM) dropped to 3.93% from 4.08% in the last quarter. The CEO prefers to wait until the next quarter to assess stabilization in microfinance and the impact of potential interest rate cuts.
Lower microfinance balances and loan repricing affected yields on advances, while the cost of funds increased due to higher deposit costs and borrowings.
Strong growth in vehicle and microfinance loan disbursements compared to the previous quarter.
Retail loans grew by 19%, and the corporate loan book grew by 16%.
Growth has picked up in core business areas, and retail loans are expected to increase further.
The company is uncertain about the impact of the proposed microfinance law but believes it won’t affect regulated entities based on government indications.
The company hired 10,000 new employees for Bharat Financial in the past year, blending experienced and new talent.
Economic indicators suggest stabilization in activity after a slowdown in Q2FY25.
Public sector investment declined in the first half of the year, slowing overall investment growth.
Credit card spending grew 12% QoQ to ₹28,135 crores.
Launched Indie for Business, a digital banking solution for MSMEs, with over 10,000 users in the first month.
The Indie digital app is now available to all customers and has received positive feedback from early users.
Microfinance loan defaults (slippages) increased from 4.3% in Q2FY25 to 8.5% in Q3FY25, but SMA 1+2 levels remained stable at 0.4%.
Cost-to-income ratio rose by 500 bps YoY to 52.3%, mainly due to higher business-related expenses.

Valuation and Outlook

IndusInd Bank reported weaker-than-expected results for Q3FY25, mainly due to slower loan growth, higher defaults (slippages), and increased credit costs. The bank has been cautious in giving out loans, especially in the microfinance (MFI) segment, where it is the second-largest lender. This cautious approach has slowed down its overall credit growth for the quarter. The bank is gradually reducing its exposure to the MFI sector, while vehicle loans showed moderate growth, with expectations for further improvement in Q4FY25. Earlier, the management had predicted 16% growth, so it will be important to see if they adjust this target based on the latest performance.

The Net Interest Margin (NIM) declined due to lower profits from MFI loans and higher deposit costs. However, if microfinance growth picks up, NIMs are expected to improve. The bank’s asset quality weakened, as both Gross NPA (GNPA) and Net NPA (NNPA) increased, and Return on Assets (ROA) fell, showing signs of financial stress. On the positive side, deposit growth remained strong, supported by retail deposits. Overall, Q3FY25 was a weak quarter for IndusInd Bank. Moving forward, it will be important to watch the bank’s strategy to manage credit costs, improve margins (NIMs), and reduce loan defaults (slippages).