Synopsis: IndusInd Bank faces ongoing challenges in securing low-cost deposits and maintaining margins, resulting in an 11% stock decline this year despite sectoral gains. The June quarter update offers little hope for a quick turnaround.
IndusInd Bank is grappling with difficulties in securing low-cost deposits and maintaining margins, a challenge shared by many banks. The bank's performance has left investors wary, with its stock down 11% this year despite sectoral gains. The June quarter update indicates no quick turnaround is in sight.
Investor Concerns
Investors in IndusInd Bank Ltd are notably disheartened by the private lender's recent performance. So far this calendar year, the stock has tumbled by 11%, contrasting sharply with sector indices Nifty Private Bank and Nifty Bank, which have climbed 5% and 8%, respectively. The provisional operational update for the June quarter (Q1FY25) offers little solace, signalling that a significant recovery in stock returns remains elusive.
Performance Metrics
Year-on-year, loan/credit growth reached 15.5%, while deposits rose 14.8%. Tepid loan and deposit growth translated into a moderation in the CASA (current account and savings account) ratio to 36.7% in Q1FY25. As a result, the bank's net interest margin (NIM) is likely to suffer.
Impact of Rate Adjustments
IndusInd Bank increased its retail term deposit rates (one-three year bucket) by around 50 basis points from December 2023 to June 2024. This rate hike's impact on NIMs in Q1FY25 is expected to be significant. “IndusInd Bank increased its retail term deposit rates (one-three year bucket) by around 50 basis points over December 2023 to June 2024, and the impact of that could also be seen on NIMs in Q1FY25," said a Nomura Financial Advisory and Securities (India) report dated 5 July.
Future Outlook
The bank's struggles are indicative of broader challenges within the banking sector, particularly in balancing growth with profitability. As IndusInd Bank works to navigate these issues, the path to a substantial recovery remains uncertain.
Conclusion
IndusInd Bank's ongoing struggle with securing low-cost deposits and maintaining margins underscores the broader challenges faced by the banking sector. Investors remain cautious as the bank's performance lags behind sectoral gains, and a quick turnaround seems unlikely in the near future.
