27 Dec , 2024 By : Debdeep Gupta
Private lender IndusInd Bank Ltd shares rose in early trade on December 27, after the bank decided to offload its non-performing microfinance loan pool of 10.6 lakh retail loan accounts amounting to Rs 1,573 crore as the MFI sector continues to see stress.
The lender will auction the microfinance NPAs via a public bidding process and has invited bids on a 100 percent cash basis.
IndusInd Bank has set a reserve price of Rs 85 crore for the auction, which is just over 5 percent of the total principal amount of these loans. Interested bidders were asked to submit their proposals by December 30.
The loans up for sale make up 4.8 percent of the bank’s microfinance portfolio, which was valued at Rs 32,723 crore as of September 30. The bank reported Rs 2,259 crore in bad loans from its microfinance segment, while its total gross non-performing assets stood at Rs 7,639 crore at the end of the second quarter.
At 9.20 am, shares of IndusInd Bank were quoting Rs 944.65 on the NSE, higher by 1.4 percent.
DAM Capital slashed its target price on IndusInd Bank to Rs 1,200 per share, from its target price of Rs 1,600 apiece. However, the brokerage kept its buy call intact.
The pressure on profitability will continue in FY25 due to the ongoing challenges in MFI lending. The return on asset (ROA) will remain in the range of one percent, added the brokerage, which will lead to a sharp cut in the EPS or earnings per share.
As a result, DAM Capital cut its EPS estimates for FY25, FY26 and FY27 by 18 percent, 14 percent and 13 percent, respectively. The slippages for Q3 are expected to rise, while loan growth is likely to fall 12 percent on-year as a result of the continued decline in the MFI book
IndusInd Bank's stock has seen continued weakness since its September quarter earnings after the lender reported a poor set of numbers.
IndusInd Bank reported a significant drop in its consolidated net profit for Q2FY25, falling 39.5 percent on-year to Rs 1,331 crore. The bank’s net interest income (NII), a key indicator of profitability, saw a growth of 5 percent on-year to Rs 5,347 crore during the July-September quarter. However, the growth in NII was below market expectations.
IndusInd Bank's provisions and contingencies ballooned 87 percent YoY basis to Rs 1,820 crore from Rs 974 logged in the corresponding quarter of the previous fiscal, amid stress in its microfinance loan book.
Recently, global brokerage UBS maintained a neutral call on IndusInd Bank, reducing its target price to Rs 1,150 per share from Rs 1,350, citing concerns over rising non-performing loans (NPLs) and deteriorating portfolio quality.
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