Crisil reaffirms highest rating P1+ for fixed deposits and certificates of deposit programme of IndusInd Bank
Mumbai, October 09, 2009:
CRISIL has reaffirmed its P1+ rating of IndusInd Bank Ltd’s (IndusInd) fixed deposits and certificates of deposit programme. The rating continues to reflect the bank’s established presence in the commercial vehicle (CV) financing business and the significant improvement in its asset quality. The rating also factors in the bank’s modest resource and earnings profile, and average capitalisation levels.
The bank has been focusing on corporate and commercial banking to support growth and diversify its business mix. The advances in the corporate and commercial banking segment registered a 53 per cent year-on-year (y-o-y) growth, to Rs.86.7 billion as on March 31, 2009, from Rs.56.7 billion as on March 31, 2008. IndusInd is a major player in the domestic CV financing business, particularly in the banking sector, in terms of disbursements. While CV disbursements have undergone a y-o-y decline in 2008-09 (refers to financial year, April 1 to March 31) in line with the industry trends, this segment accounted for 26.50 per cent of the bank’s total loan book as on March 31, 2009. CRISIL believes that the bank will continue to strengthen its retail finance business by leveraging on the erstwhile Ashok Leyland Finance Ltd’s (ALFL’s) strong brand equity, its own origination skills and wide distribution network, and linkages with auto major Ashok Leyland Ltd.
The bank’s asset quality has also improved significantly - the level of gross non-performing assets (NPAs) and net NPAs has declined to 1.61 per cent and 1.14 per cent respectively as on March 31, 2009, from 3.04 per cent and 2.27 per cent respectively as on March 31, 2008. However, the net NPA levels in the consumer financing division increased to 1.93 per cent as on March 31, 2009, from 1.71 per cent as on March 31, 2008. IndusInd’s ability to sustain such an improvement in its asset quality given the continuing challenges in the operating environment would be critical to its credit profile going forward.
IndusInd’s resource profile continues to be modest. While the share of the low-cost current and savings accounts (CASAs) in the total deposits has improved to 19.2 per cent as on March 31, 2009, from 15.7 per cent as on March 31, 2008, the same remains below the industry average levels. The management of the bank has initiated steps to increase the share of CASAs and reduce the dependence on existing high cost bulk deposits; however, any material improvement on these parameters would be visible only over a longer time period. IndusInd’s earnings have improved to some extent but continue to be constrained because of its resource mix and the associated higher borrowing costs. The bank’s return on assets (ROA), at 0.58 per cent for 2008-09, remains below industry average level.
IndusInd’s capital base remains average. It raised Rs.2.2 billion through a global depository receipts issue and Rs.1.0 billion as Tier II capital in 2008-09. As on March 31, 2009, the bank had an overall capital adequacy ratio (CAR) of 12.55 per cent and a Tier I CAR of 7.52 per cent. The bank intends to maintain its overall CAR above 12.00 per cent. Given the bank’s growth aspirations and earnings profile, CRISIL believes that IndusInd will require regular capital infusions.
(This is a press release from IndusInd Bank)
