(Reuters) -India’s IndusInd Bank on Thursday reported a surprise 39% fall in second-quarter profit weighed down by higher provisions for bad loans and shrinking lending margins.
The private lender posted a net profit of 13.25 billion rupees ($157.7 million) for the three months ended Sept. 30, sharply below analysts’ average expectations of 22.08 billion rupees as per data compiled by LSEG.
Provisions and contingencies, or funds set aside to cover loan losses, nearly doubled to 18.20 billion rupees. Lenders typically choose to set aside more funds to cover for potential bad loans and against any unforeseen events.
Its asset quality deteriorated, with gross non-performing assets ratio at 2.11% at the end of September, compared with 2.02% three months earlier.
The bank’s slippages, or the proportion of good loans turning bad, rose by 17% from the previous quarter to 17.98 billion rupees.
Kotak Mahindra Bank and RBL Bank reported deterioration in asset quality and sharp jumps in slippages earlier this month, amid stress in credit cards and microfinance loans.
Microfinance loans comprise 9% of IndusInd Bank’s total loan book.
All collateral-free loans to borrowers belonging to low-income households, or those with annual income up to 300,000 rupees are termed as microfinance loans.
IndusInd’s net interest income – the difference between interest earned and paid – rose 5% from last year to 53.47 billion rupees, missing analysts’ expectations of 55.39 billion rupees.
Net interest margin shrunk sharply to 4.08% from 4.25% in the previous quarter and 4.29% a year earlier.
Its loans grew 13% in the second quarter, while deposits rose 15%.
Banks are also struggling to attract deposits as more Indians are putting money into assets that can potentially yield greater returns, making the rate environment competitive and in-turn pressuring margins.
Shares of IndusInd Bank closed 0.5% higher ahead of results.
($1 = 84.0450 Indian rupees)
(Reporting by Dimpal Gulwani and Siddhi Nayak; Editing by Varun H K)
