Why Indian Bank Share Price is Rising

The Indian banking sector has faced considerable pressure lately, with several challenges impacting growth and profitability.

However, the wind seems to be shifting as public sector banks (PSUs) are now witnessing a surge in share prices. Most PSU banks have shown upward momentum, with Indian Bank leading a noticeable rally that's captured investor attention.

Indian Bank, one of India's prominent public sector banks, offers a range of services like loans, deposits, and digital banking solutions. Known for its strong retail and corporate banking presence, it has earned a solid reputation in the financial sector.

Recently, its share price has been under focus, showing an upward trend over the past five days following the release of its quarterly results.

Let's take a closer look at the company's quarterly performance to understand what's fueling Indian Bank's share price rise.

Stellar Quarterly Results

Indian Bank announced a significant rise in its Q2 net profit, achieving a 36% year-on-year (YoY) growth. The net profit reached Rs 27.1 billion (bn), up from Rs 19.9 bn in the same quarter last year.

This rise is primarily due to reduced provisions and an increase in net interest income, indicating a positive shift in the bank's financial management and core operations.

Net interest income (NII) also rose, up by 8% YoY, reaching Rs 61.9 bn compared to Rs 57.4 bn last year. This growth reflects steady momentum in lending.

Asset quality has improved, with gross non-performing assets (NPA) decreasing to 3.5% from 3.8% in the previous quarter. Net NPA also reduced to 0.3%, down from 0.4% in the previous quarter. This shows strength in loan recovery efforts and improved credit quality within the bank's portfolio.

Provisions were cut considerably, amounting to Rs 11 bn in Q2, down from Rs 12.6 bn in the previous quarter and Rs 15.5 bn YoY. This reduction highlights the bank's strategic management of its loan portfolio, focusing on minimising risk exposure.

Indian Bank share price is rising following the release of its quarterly results. The robust profit growth, reduced provisions, and improved asset quality have all contributed to increased investor confidence. Each financial metric points to the bank's strong performance and strategic measures, supporting the recent rally in its share price.

However, the investor sentiment around Indian Bank has shifted after its latest announcement. On Monday Indian Bank share price was down 2.6%.

Let's take a look at the latest announcement to understand why Indian bank share price is on a downward trajectory.

Interest Rate Cuts

Indian Bank announced a reduction in its treasury bill-linked lending rates (TBLR) following a review by its asset liability management committee.

The committee assessed several rates, including the marginal cost of fund-based lending rate (MCLR), TBLR, base rate, and benchmark prime lending rate (BPLR). The revised TBLR rates became effective on Sunday, 3 November 2024.

The updated TBLR rates now stand at 6.45% for terms under 3 months, down from 6.6%. For 3 to 6 months, the rate has decreased from 6.65% to 6.55%. Similarly, the rates for loans spanning 6 months to 1 year, as well as 1 to 3 years, have each been lowered from 6.65% to 6.55%.

Meanwhile, other key rates remain unchanged. The MCLR remained steady, ranging from 8.25% to 9% for overnight to 1-year terms. The Base Rate holds at 9.85%, and the BPLR stays at 14.1%.

TBLR refers to lending rates linked to the yields of government-issued treasury bills (T-bills), which are short-term debt securities used to meet the government's immediate funding needs.

TBLR rates are generally aligned with the yields of these T-bills, which are issued in 91-day, 182-day, or 364-day maturities, reflecting the government's short-term borrowing costs.

The reduction in TBLR rates could be perceived as an indication that Indian Bank is anticipating lower yields on government securities, which could affect its interest income. Additionally, lowering rates could compress margins, particularly in the short term, leading to reduced revenue.

This prospect has likely created concern among investors, leading to a fall in Indian Bank share price after the announcement.

What Next?

Indian Bank is gearing up for sustainable growth, focusing on core areas that will likely shape its future. The bank plans to expand its digital banking services, as seen in its recent successes with digital transactions reaching 90% of its total.

It also aims to increase customer engagement through digital products, having added new services and features in its mobile banking app to make transactions more seamless and secure.

These digital strategies are expected to improve operational efficiency and enhance customer experience, potentially attracting a younger demographic of customers.

On the lending front, Indian Bank is committed to expanding its presence in high-demand segments such as retail, agriculture, and MSMEs, with special emphasis on secured loans like gold loans.

This focus on secured lending is part of the bank's strategy to maintain good asset quality and effectively manage risk.

In terms of profitability, Indian Bank has shown improved margins and stable capital adequacy, which it aims to sustain. It's expected to carefully manage costs while gradually expanding its loan book to maintain steady growth.

Indian Bank also plans to focus on further reducing non-performing assets (NPAs), as evident from recent improvements in its gross and net NPA ratios.

How Indian Bank Share Price has Performed Recently

In the past five days, Indian Bank share price has rallied 3.4%. In the last month, it is up 8.9%.

In 2024, so far its share price surged 35.1% and it went up 35.2% in the last year.

The stock touched its 52-week high of Rs 626.4 on 3 June 2024 and a 52-week low of Rs 391.3 on 30 November 2023.

About Indian Bank

Indian Bank is a medium-sized bank which was started in 1907. It offers deposits, loans and services. The Bank's segments include treasury, corporate/wholesale banking, retail banking and other banking operations.

To know more about Indian Bank, check out its fact sheet and quarterly results.

For a sector overview, read our banking sector report.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy investing!

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