Shares of IndusInd Bank were locked in the 20 per cent lower circuit in an otherwise firm market, at Rs 329.25, on the BSE on Tuesday after the bank said the outbreak of coronavirus (Covid-19) could push up its credit costs to around 200 to 210 basis point in March 2020 quarter, indicating a rise in bad loans. At 9:45 am, the S&P BSE Sensex was at 28,996.35, up 556 points or nearly 2 per cent.

In an analysts call on Monday, the management said the near-term impact of covid-19 would have limited impact on their portfolio, assuming a 3-month disruptuon. The base-line assumptions say the impact of covid-19 would remain for 3-4 months and demand would recover post June 2020. The management, however, also highlighted that base-case assumptions will be re-visited if the situation aggravates. This was the first analyst call after the appointment of Sumant Kathpalia as the bank’s new managing director and chief executive officer.

“The bank guided that loan growth may be contained for a couple of quarters and revive thereafter as the situation improves to 8-10% for FY21E. We believe the countrywide lockdown may delay fresh credit demand while the bank may need to extend credit lines to affected businesses in the near term,” wrote analysts at ICICI Securities in a recent note. The brokerage has cut their estimates by 23%/65% for FY20E/FY21E due to lower growth, recognition of stressed telecom accounts and higher provisioning for NPLs.

Though the bank will be using 3-month moratorium window announced by the Reserve Bank of India, it would see some bad loans or non-performing assets in Q4 from other accounts (apart from the ones impacted due to covid-19). For this, the bank aims to increase the provision coverage ratio (PCR) to 60 per cent going ahead, from around 53 per cent in December quarter. It also aims to maintain a high threshold for CET1 capital.

“IIB trades at 0.9x P/ABV and 10x P/E FY21E. The opportunity of a bounce-back in earnings growth and RoA (in FY22E) is factored into our DDM-based target price of Rs1,268, meriting a BUY rating on the stock,” the brokerage added.

The bank expects its commercial vehicle segment (12 per cent of loans) to be the first to bounce back once the situation normalises. In fact, in the later part of March, it had witnessed some recovery in the commercial vehicle segment. While operation of its micro finance business (10 per cent of loans) has got affected due to the lockdown, personal loans, including credit card (5 per cent of loans) is likely to see higher delinquencies amid covid-19. Further, up to 8 per cent of its business banking and loan against property portfolios could see asset quality pressure as these are from the impacted sectors like retail, tour, travel, etc

Last week, the stock of the private lender had hit an 8 year low of Rs 235.55 on the National Stock Exchange (NSE) with the bank’s market-capitalisation slipping below the Rs 20,000 crore-mark. In February, global rating agency Moody’s had revised the outlook on IndusInd Bank’s instrument to “negative” from “stable” to account for the risk of further asset quality deterioration. However, it affirmed ratings on foreign and domestic currency deposits, on the back of a strong capital base.

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