IndusInd Bank shares were blocked in the lower 20% circuit on an otherwise firm market, at Rs 329.25, on BSE on Tuesday after the bank said the coronavirus epidemic (Covid -19) could drive credit costs up to around 200 to 210 basis points in the March 2020 quarter, indicating an increase in bad debts. At 9:45 a.m., the S&P BSE Sensex was at 28,996.35, up 556 points or nearly 2%.
In a call to analysts on Monday, management said the short-term impact of covid-19 would have a limited impact on their portfolio, assuming a 3-month disruption. Baseline assumptions indicate that the impact of covid-19 will remain for 3-4 months and demand will recover after June 2020. Management has also noted, however, that the baseline assumptions will be re-examined if the situation worsens. It was the first call from analysts after Sumant Kathpalia was appointed as the bank’s new managing director and chief executive officer.
Although the bank will use the 3-month moratorium announced by the Reserve Bank of India, it would see bad debt or non-performing assets from other accounts in the fourth quarter (except those impacted due to covid-19 ). For this, the bank aims to increase the ratio of cover of provisions (RAP) to 60% in the future, against around 53% in the quarter of December. It also aims to maintain a high threshold for CET1 capital.
The bank expects its commercial vehicle segment (12% of loans) to be the first to rebound once the situation normalizes. In fact, by the end of March, there had been some recovery in the commercial vehicle segment. While the functioning of its microfinance activity (10% of loans) has been affected due to freezing, personal loans, including credit cards (5% of loans), are expected to experience an increase in arrears in the middle of the covid-19. In addition, up to 8% of its business banking and mortgage lending portfolios could be under pressure on asset quality as it comes from affected industries such as retail, travel, travel, etc.
Last week, the stock of the private lender had reached an 8-year low at 235.55 rupees on the National Stock Exchange (NSE), the bank’s market capitalization slipping below the threshold of 20,000 rupees. In February, the world rating agency Moody’s revised the outlook for the IndusInd Bank instrument from “negative” to “stable” to reflect the risk of further deterioration in asset quality. However, it confirmed the ratings on deposits in foreign and domestic currencies, based on a solid capital base.