IndusInd Bk says addressed concern in MFI sector, sees growth in coming qtrs
This story was originally published at 18:55 IST on 31 January 2025
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--IndusInd Bank MD: Remain cautious on microfinance book
--CONTEXT: Comments by IndusInd Bank's mgmt in post earnings media call
--IndusInd Bank: Out of total slippages, INR 6.95 bln from microfinance
--IndusInd Bank: May see 4% and above NIM from Jan-Mar
--IndusInd Bank: Do not have growth issue in corporate, retail books
--IndusInd Bank: Will have new CFO in 90-120 days
--IndusInd Bank: Await feedback from RBI on reappointment of MD
NEW DELHI – IndusInd Bank has addressed concerns arising out of the stress in the microfinance sector and now expects growth in the segment to normalise in coming quarters, with a focus on managing credit costs, said Sumant Kathpalia, managing director and chief executive officer of the bank, at the post-earnings media call on Friday. "The growth will take some time for it to come back, may be by this quarter (Jan-Mar) you should start seeing the impact on the book," the management said.
The bank's microfinance loan book stood at INR 325 billion as of Dec. 31, up 9% on year, but down from INR 327 billion as of Sept 30.
Regarding growth, the bank's retail and corporate businesses continued to perform well, growing at 16% and 19%, respectively. The primary slowdown has been in microfinance, with disbursements improving but the full growth impact taking time to materialise. The bank expects to see growth momentum in the microfinance segment in coming quarters.
The bank's management said that the microfinance business has faced increasing stress over the past few quarters, leading to proactive provisions taken last quarter. While October and November showed positive improvement, the zero bucket has stabilised, and fewer loans are transitioning into the 30-day overdue category, the management said.
Looking ahead, the 30-90 day overdue bucket, currently at 4%, is expected to normalise, bringing fresh flows down to 1.0-1.2% in the next quarter, the managemet said.
However, the management cautioned about the collection challenges arising in Karnataka. "Collection is becoming a little bit of a problem there (Karnataka) and there is a little bit of intervention from outside which is happening there," the management said. While the portfolio exposure is small, this issue could potentially spread, requiring careful monitoring, they added.
In Karnataka, some people have problems with loans from microfinance institutions. According to some reports, people were treated badly by loan collectors, which caused protests against the microfinance institutions.
Collection efficiency of the bank for current customers has risen to 99.5% as of Dec. 31, from 98.6% on Sept. 30. For standard customers, it stood at 94.9%.
Regarding slippages, the bank's management said, "While the slippages may get elevated for another quarter, our customer base is showing early signs of stability which will start reflecting from next quarter onwards." For Oct-Dec, the bank reported fresh slippages of INR 22.00 billion compared with INR 17.98 billion a quarter ago. The management also provided clarity on the slippages, noting that out of the total slippages, INR 6.95 billion came from the microfinance exposure.
The bank expects to see an improvement in net interest margin, which is expected to reach 4% in Jan-Mar. "The cost of funds was subsequently higher due to an increase in cost of deposits and higher borrowing quarter-on-quarter. As a result, net interest margin was at 3.93% vs 4.08% on quarter," the management said. However, the management expects NIMs to grow as the year progresses.
On the appointment of a new chief financial officer, the management confirmed they are currently in the interviewing process and expect to make an appointment within 90-120 days. On the extension of the tenure of serving the managing director, Kathpalia stated that they are awaiting feedback from the Reserve Bank of India regarding the reappointment decision. End
Edited by Akul Nishant Akhoury
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