In a mixed year for lenders, IndusInd Bank shines

May 31, 2013

Rate cuts by the Reserve Bank of India, new bank licence norms, bad loan worries and money laundering accusations – Indian banks are firmly in the public eye in 2013.

Going by stock returns, lenders have had a mixed year so far. The BSE banking sub-index has gained less than 1 percent, as compared to the benchmark Sensex’s return of nearly 3 percent. Big banks such as the State Bank of India have lost 13 percent while HDFC Bank has gained around 4 percent. Some smaller players have struggled, with IDBI and Bank of Baroda falling more than 20 percent.

Small private lender IndusInd Bank, which focuses on retail lending, has been the star performer with gains of around 25 percent, making it the best performing stock in the 14-share banking index in 2013, data showed.

Comparing the returns of these stocks in the last one year, IndusInd has risen more than 70 percent to top the return charts. The closest competitor is Yes Bank with gains of around 50 percent.

“The banks which have more of a retail business are the ones which are doing well,” said Vaibhav Agarwal, vice president (research) at Angel Broking, listing IndusInd, HDFC Bank and ING Vysya as examples.

According to Thomson Reuters data, 30 of the 40 analysts covering IndusInd have a buy or equivalent rating on the stock, while three analysts have a ‘sell’.

IndusInd, the eighth largest stock by market capitalization in the banking index, was added to the Nifty in April and hit a high of 530.6 rupees on May 27.

Romesh Sobti, MD and CEO of IndusInd Bank, in an e-mailed reply to questions listed a well defined strategy, execution and a partnership approach to distribute products as some of the key drivers of the bank’s performance.

Apart from catering to retail clients, IndusInd also lends money to those buying commercial vehicles like trucks. In April, CRISIL Ratings said defaults in commercial vehicle (CV) loans are rising and warned that the quality of retail assets may deteriorate further.

Manish Ostwal, an analyst with Mumbai-based brokerage KR Choksey, is optimistic about the bank’s future prospects, but said competition in the retail segment from public-sector and large private-sector banks, and the bank’s CV loan book could be headwinds going ahead.

However, Sobti of IndusInd said: “We are not seeing any material movement in our delinquencies nor credit costs in this segment.”

The lender recently reported a near 38 percent rise in March-quarter profit. IndusInd had acquired Deutsche Bank’s India credit card business in April 2011 and on Wednesday announced a tie-up with American Express to launch a credit card for its affluent customers.

“I would wait for some correction in the stock … I don’t think there is a favourable risk-reward,” Ostwal of KR Choksey said, adding that 480-490 rupees would be a good level to enter the stock with a 12-month horizon.

(You can follow Aditya on Twitter @adityayk)

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