Why IndusInd Bank Share Price is Falling

The banking sector in India plays a vital role in the economy. It consists of public, private, and cooperative banks that support credit growth and financial inclusion.

Private banks, in particular, have witnessed significant growth due to technological advancements and innovative services. However, the sector remains exposed to challenges like economic fluctuations, regulatory changes, and credit risks.

IndusInd Bank is a leading private sector bank in India. It provides services across corporate, retail, and wealth management segments. The bank has established itself with a strong urban and rural presence.

Recently, IndusInd Bank has come under investor focus as its share price dropped by 21.2% in the last month. This sharp fall in share price occurred after the bank released its quarterly results. The numbers were below market expectations, leading to a significant drop in investor confidence.

Let's delve into the details of these results to understand the reasons behind this decline.

#1 Weak Quarterly Results

Last month IndusInd Bank reported a 39% year-on-year (YoY) decline in net profit for Q2 FY24, standing at Rs 1.3 billion (bn). This drop in profitability is attributed to a significant rise in provisions and lower other income.

Provisions for the quarter rose to Rs 1.8 bn, up from Rs 1 bn in the same quarter last year, reflecting cautious provisioning for potential credit risks.

The net interest income (NII), however, increased by 5% YoY to Rs 5.3 bn, indicating stable core earnings. The growth in NII came from higher interest income on advances, but this was partially offset by rising interest expenses.

The net interest margin (NIM) fell to 4.1%, down by 21 basis points YoY. This decline reflects the narrowing spread between the interest earned and interest paid, likely due to competitive lending rates and higher cost of funds.

Deposits showed robust growth, crossing Rs 49.5 bn, a 15% YoY increase. CASA deposits contributed Rs 17.8 bn, forming 35.9% of total deposits. While deposit growth indicates strong customer trust, the slightly reduced CASA ratio suggests a shift towards term deposits offering higher interest rates.

Asset quality saw slight deterioration, with gross NPAs rising to 2.1% from 1.9% YoY and net NPAs increasing to 0.6% from 0.5%. This reflects some stress in the loan portfolio, though the provision coverage ratio remained stable at 70%, highlighting adequate risk coverage.

Operating expenses rose to Rs 3.9 bn from Rs 3.5 bn YoY due to higher spending on operational and technological upgrades. Other income fell marginally to Rs 2.2 bn, showing reduced earnings from non-core activities.

The total capital adequacy ratio decreased to 16.5% from 18.2% YoY, impacted by rising credit growth and increased risk-weighted assets.

The decline in IndusInd Bank's share price is linked to weaker-than-expected quarterly results. The steep drop in net profit, rising provisions, lower NIM, and slight deterioration in asset quality have raised investor concerns.

These factors indicate increased costs, reduced profitability, and potential stress in the loan book, which have collectively dampened market sentiment around the stock.

#2 Weak Sectoral Outlook

The decline in IndusInd Bank's share price is largely driven by a weak outlook for the banking sector. Disappointing second-quarter results across private banks have heightened concerns about the sector's performance. Analysts point to a deterioration in asset quality, particularly in microfinance and credit card portfolios, as a significant factor impacting profitability.

Margins remain under pressure as higher slippages and a challenging economic environment take their toll. Over-leveraging among younger borrowers has added to the stress, with many struggling to manage growing debt amid rising inflation and other financial challenges.

This broader sectoral weakness, coupled with fears of prolonged high interest rates, has made investors cautious. Persistent selling by foreign investors, who hold a significant share of banking stocks, has further amplified the negative sentiment.

These factors, combined with IndusInd Bank's underwhelming financial performance, have weighed heavily on its share price.

What Next?

IndusInd Bank is focused on steering through current challenges by prioritising long-term sustainability. The bank aims to accelerate growth in secured lending segments, such as vehicle finance and home loans, which have shown resilience.

Seasonal demand and improved rural recovery are expected to boost disbursements in the second half of the year. Efforts to stabilise and cautiously grow the microfinance and credit card segments are also underway, ensuring risks are managed effectively.

Digital banking is a critical pillar of the bank's strategy. The INDIE app, which has gained significant traction, is expected to support deposit mobilisation and customer acquisition.

This aligns with the bank's broader goal of reducing dependence on bulk deposits and strengthening its liabilities franchise through retail-focused initiatives.

To improve asset quality, IndusInd Bank is increasing its focus on collections, especially in microfinance and unsecured lending, while cautiously re-evaluating lending standards in stressed regions and sectors. The bank has also fortified its balance sheet with additional provisions, preparing for any potential credit shocks.

Looking forward, the bank plans to enhance its loan-to-deposit ratio by gradually resuming growth in high-yielding segments like microfinance and unsecured lending. This shift is expected to aid in margin recovery and profitability.

How IndusInd Bank Share Price has Performed Recently

In the past five days, IndusInd Bank share price has tumbled 3.1%. In the last month, it has slipped 21.2%.

The stock price has tumbled 35.6% in the 2024. Additionally, it has slipped 31.9% in the last year.

The stock touched its 52-week high of Rs 1,694.4 on 15 January 2024 and a 52-week low of Rs 1,000.1 on 18 November 2024.

About IndusInd Bank

IndusInd Bank is one of the new-generation private sector banks in India. It commenced operations in 1994.

The bank's business lines include corporate banking, retail banking, treasury, foreign exchange, and more.

The bank's business divisions include retail/consumer banking, consumer finance, global markets, group corporate & commercial banking, and investment banking.

It provides multi-channel facilities, which include automated teller machines (ATMs), net banking, mobile banking, and international debit cards. The bank has multi-lateral tie-ups with other banks providing access to more than 18,000 ATMs.

They also offer DP facilities for stock and commodity segments.

The bank is a pioneer in launching internet banking. The bank specialises in retail banking services and is also working on expanding its network of branches all across the country.

To know more about IndusInd Bank, check out its factsheet and quarterly results on our website.

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