By Siddhi Nayak and Dimpal Gulwani
MUMBAI/BENGALURU (Reuters) -India’s IndusInd bank reported an unexpected drop in second-quarter profit on Thursday due to stress in microfinance loans, which led to higher provisions, lower asset quality and narrow lending margins.
Microfinance loans, or collateral-free loans to borrowers with annual income up to 300,000 rupees, comprised 9% of IndusInd Bank’s total loan book of 1.91 trillion rupees as of end-September.
The gross non-performing assets ratio in the microfinance segment jumped to 6.54% from 5.16% sequentially.
The lender’s provisions and contingencies, or funds set aside to cover loan losses, nearly doubled on-year to 18.20 billion rupees.
That resulted in a 39% year-on-year drop in net profit to 13.25 billion rupees ($157.7 million) for the three months ended Sept. 30, sharply below analysts’ expectations of 22.08 billion rupees as per data compiled by LSEG.
The bank set aside more provisions “as a prudent measure,” CEO Sumant Kathpalia said in a media call, without providing specific details on what those were for.
IndusInd bank’s slippages, or the proportion of good loans turning bad, rose 17% from the previous quarter to 17.98 billion rupees, which Kathpalia attributed to the microfinance stress.
The bank is seeing stress in certain districts of Bihar, Jharkhand and Maharashtra, he said.
The bank is being prudent in loan disbursement to these states and reducing the average ticket size of microfinance loans to about 39,000 rupees from 42,000 rupees, he said.
Kotak Mahindra Bank and RBL Bank had also reported deterioration in asset quality and sharp jumps in slippages, amid stress in credit cards and 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.
Net interest margin shrunk sharply to 4.08% from 4.25% in the previous quarter and 4.29% a year earlier, also mainly because of the stress in microfinance loans, Kathpalia said.
NIM will recover to 4.2%-4.3% by the next two quarters as stress in the microfinance book is expected to reduce, he added.
($1 = 84.0450 Indian rupees)
(Reporting by Dimpal Gulwani and Siddhi Nayak; Editing by Varun H K)
