In its first analyst call after the appointment of Sumant Kathpalia as the bank’s new managing director and chief executive officer, IndusInd Bank on Monday provided an update to analyst mainly to discuss the impact of covid-19 and the steps it is taking to strengthen the business.
Among key points of discussion, IndusInd Bank expects its credit cost (bad loan provisioning as a percentage of loan book) to be around 200 to 210 basis point in March 2020 quarter, which indicates a rise in bad loans. This is way higher than the average 37 basis points seen in the past three quarters, said an analyst with a domestic brokerage.
In order to cover the increase in bad loans, the bank is targeting 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.
While discussing the near-term impact of covid-19, the management said, “Our base case assumption of 3-month disruption suggests limited impact on our portfolio. But this is an evolving event and that is the caveat.” 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.
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).
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.
Going ahead, the management would focus more on balance sheet realignment rather than growth. The immediate priority is to consolidate and build resilience.
As past of its 4D strategy, the bank plans to focus on retailisation with higher share of retail loans and deposits. In March quarter so far, the bank witnessed 10-11 per cent fall in deposits, which was largely (2/3 rd) on account of government related accounts and partly due to wholesale deposits; retail deposit reduction has been least.
The management team would be largely intact, but some tweaks on structure and accountability is expected. Employees to be incentivised appropriately, but there could be a change in mix of fixed/variable besides malus/clawback provisions where applicable, the bank said in a presentation.