Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AA+/Stable/CRISIL A1+' ratings on the existing debt instruments of IndusInd Bank Limited (IndusInd).

 

CRISIL Ratings has also withdrawn its ratings on the Tier-I bonds (Under Basel III) amounting to Rs 2,000 crore (See ‘Annexure Details of Rating Withdrawn' for details) on redemption and receipt of requisite documentation. The rating is withdrawn in line with CRISIL Ratings' policy on withdrawal of ratings.

 

The ratings continue to reflect the healthy capitalisation levels with a high core equity ratio and comfortable earnings profile marked by healthy pre-provisioning profits. However, these strengths are partially offset by the modest, albeit improving resource profile, and higher cost of deposits.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has evaluated the consolidated business and financial risk profiles of IndusInd Bank.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Healthy capitalisation

Capitalisation metrics of the bank continued to remain healthy as reflected in CET1, and overall capital adequacy ratio (CAR) at 15.8% and 17.2% respectively as on March 31, 2024. The bank had last raised around Rs 2,021 crore of equity capital through conversion of warrants issued to promoters in February 2021 and Rs 3,288 crore in September 2020 through preferential allotment.

 

Going forward, capitalisation is expected to be supported by rising positive internal accruals and expected capital raise in the form of qualified institutional placement (QIP), American depository receipts (ADR), or any other means, for which the bank has received its Board’s approval as per stock exchange filings dated July 19, 2024.

 

• Comfortable earnings profile with healthy pre-provisioning profits

The earnings profile of the bank remains comfortable, marked by healthy pre-provisioning profits, and supported by adequate net interest margins owing to exposure to high yield segments such as vehicle finance and microfinance. The high yield generated from its retail advances has allowed the bank to absorb its high cost of deposits to some extent. Additionally, fee income (~1.9% of average total assets, in fiscal 2024) has also supported the earnings profile.

 

Net interest margins for the bank remained range-bound with it improving marginally by 15 bps y-o-y to 4.24% during fiscal 2024 (4.09%: Fiscal 2023), owing to ability of the bank to pass on the interest rate hike to its retail and corporate borrowers alike. Nevertheless, operating expenses inched up to 2.9% during fiscal 2024 on the back of rising branch count and increased expenditure on technology infrastructure. Consequently, the bank’s pre-provisioning profits thus remained range-bound for fiscal 2024 at 3.3% of average assets, compared to 3.4% in fiscal 2023.

 

However, driven by lower slippages in the corporate lending segment and lower write-offs towards retail lending, credit costs witnessed an improvement with the ratio, as a percentage of average total assets, improving to 0.8% during fiscal 2024, as compared to 1% in the past fiscal. The provisioning cover ratio (PCR) of the bank was also stable at 71% as on March 31, 2024. The bank has additionally set aside standard contingent provisions amounting to Rs 1,000 crore and the standard asset provisions (other than covid related) stood at Rs 1,485 crore as on March 31, 2024. As a result, bank’s ROA stood comfortable and improved marginally to 1.9% for fiscal 2024 (1.7% for fiscal 2023).

 

Weaknesses:

• Asset quality remains monitorable

As on March 31, 2024, corporate and commercial banking advances made up 44% of the bank’s total advances, improving marginally from 46% as on March 31, 2023. Of the total corporate advances, nearly 78% comprised of borrowers with a credit rating of A- or higher. While the share of corporate borrowers having a credit rating of BBB+ and below has reduced gradually, it remained sizeable at 22% as on March 31, 2024. Nevertheless, CRISIL Ratings notes that despite the high exposure to corporate borrowers, slippages have improved from the segment with it reducing to 0.5% during fiscal 2024 (1%: Fiscal 2023). As a result, overall gross NPA (GNPA) of the bank improved marginally to 1.9% ending March 31, 2024, compared to 2% as on March 31, 2023. The Bank has maintained adequate provision coverage of 71% towards its GNPA accounts.

 

CRISIL Ratings’ analysis of the top exposures (as of March 31, 2024), comprising around 44% of the total large and mid-corporate loan book, indicates that the GNPA levels are not likely to deteriorate from the current levels in the near term. In the corporate segment, the Bank has exposure to Real Estate developers, Hospitality sector and Gems & Jewellery segments, while on the retail side, the bank has exposure to microfinance (MFI) and vehicle finance book which are inherently vulnerable to an economic downturn.

 

The restructured book accounted for 0.4% of the total advances as on March 31, 2024 (as compared to 0.8% as on March 31, 2023). CRISIL Ratings also understands that the restructuring in the corporate segment is insignificant. The other major restructuring segment is vehicle finance space. As the portfolio grows going forward, the ability of the bank to control asset quality metrics remains a key monitorable.

 

• Moderate resource profile

The bank has tried to shore up the resource profile with increasing share of retail deposits. As per LCR disclosure of March 31, 2024, retail deposits made up 44% of the bank’s total deposit base. Overall, the deposit base for the bank increased to Rs 384,586 crore as on March 31, 2024, from Rs 336,120 crore as on March 31, 2023, registering a 14% y-o-y increase. Deposits for the bank further grew to Rs 398,632 crore as on June 30, 2024, registering an annualized growth of 15% during the period. However, the reliance on bulk deposits remains high with top 20 depositors constituting 17.4% of total deposits as on March 31, 2024 (15.6% as on March 31, 2023). The CASA ratio of the bank stood at 38% as on March 31, 2024 (40% as on March 31, 2023), which moderated marginally to 36.7% as on June 30, 2024. The Bank continues to focus on ramping up the deposit base by tapping other customer segments.

 

The average cost of deposits of the bank was 6.35% for fiscal 2024, up 105 bps y-o-y, and was higher than that of similar rated peers. Nevertheless, the Bank’s ability to sustain its retail deposit base as it steadily optimizes the deposit rates will be a key monitorable.

Liquidity: Strong

The bank's liquidity position is comfortable with liquidity coverage ratio at 118% as on March 31, 2024, against the regulatory requirement of 100%.  As per LCR disclosure of June 30, 2024, the retail and small business component in total deposits has shown an increase of 28% year-on-year as on June 30, 2024, and stood at about 44% of total deposits. The Bank continues to focus on ramping up the deposit base by tapping other customer segments.

  

ESG Profile

CRISIL Ratings believes that Indusind Bank’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.

 

The ESG profile for financial sector entities typically factors in governance as a key differentiator between them. The sector has reasonable social impact because of its substantial employee and customer base and can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on the environment.

 

Indusind Bank has an ongoing focus on strengthening various aspects of its ESG profile.

 

Indusind Bank’s key ESG highlights:

• IndusInd Bank has committed to become carbon neutral by fiscal 2032. As part of the same, it is  shifting to green branches/offices, with 11 branches and 2 offices being LEED certified.
• The bank has launched green fixed deposits to utilize the funds in financing projects aligned to UN Sustainable Development Goals (UN SDGs) and has extended financing to projects in sectors such as Renewables, Water Treatment, E-mobility, Energy Efficiency and City Gas Distribution
• As on March 31, 2023, the share of women employees remained at 19%.
• The governance structure is characterized by majority of the board members being independent directors 75% and extensive financial disclosures.

 

There is growing importance of ESG among investors and lenders. Indusind Bank’s commitment to ESG will play a key role in enhancing stakeholder confidence, given high shareholding by foreign portfolio investors and access to both domestic and foreign capital markets.

Outlook: Stable

CRISIL Ratings believes IndusInd Bank will maintain its healthy capitalisation and comfortable pre-provisioning profitability.

Rating Sensitivity factors

Upward factors

• Improvement in resource profile with a higher share of retail deposits and lower cost of deposits in comparison to peers
• Continued growth momentum with asset quality metrics remaining comfortable and capital position remaining strong with CET1 ratio (including CCB) remaining above 13% on a sustained basis

 

Downward factors

• Higher than expected deterioration in asset quality or earnings profile.
• Decline in capital adequacy ratios (including CCB) with CET I moderating below 11% on sustained basis
• Sustained outflow in deposits

About the Bank

IndusInd Bank is a new-generation private-sector bank; it commenced operations in 1994. The bank has a pan-India presence, with around 6971 branches (including 3620 branches of BFIL) and 2956 automated teller machines (ATMs) as on March 31, 2024. It also has representative office in Dubai, Abu Dhabi and London. The bank has multilateral ties with other banks, ensuring access to more than 95,000 ATMs for its customers. It has four divisions: corporate and commercial banking, consumer banking, global markets group, and transaction banking.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs. Cr)	Complexity of Instrument	Rating Outstanding with Outlook
NA	Tier-II Bonds (under Basel III)*	NA	NA	NA	1,200	Complex	CRISIL AA+/Stable
INE095A08058	Bond	09-Dec-2016	7.6%	09-Dec-2026	1500	Simple	CRISIL AA+/Stable
INE095A08090	Tier-II Bonds (under Basel III)	29-Oct-2021	8.11%	29-Oct-2031	2800	Complex	CRISIL AA+/Stable
NA	Short-Term Fixed Deposit Programme	NA	NA	NA	-	Simple	CRISIL A1+
NA	Certificates of Deposit	NA	NA	7-365 days	40000	Simple	CRISIL A1+

*Yet to be issued

 

Annexure - Details of Withdrawal

ISIN	Instrument	Date of issuance	Coupon rate (%)	Maturity Date	Issue Size (Rs. Cr)	Complexity of instrument	Rating Outstanding with Outlook
INE095A08082#	Tier-I bonds (under Basel III)	28-Mar-2019	10.5%	Perpetual	2000	Highly Complex	Withdrawn

#Call option is exercised on March 28, 2024

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
IndusInd Bank Limited	Full	Parent
Bharat Financial Inclusion Limited	Full	Subsidiary
IndusInd Marketing & Financial Services Private Limited	Full	Associate