IndusInd Bank shares jump 4% on plan to auction ₹1,573 crore of MFI loans

Shares of IndusInd Bank rose over 4% in intraday trade on Friday after the private lender unveiled plan to offload ₹1,573 crore of non-performing microfinance retail loans. The bank has decided to auction 10.6 lakh retail loan accounts amid increasing stress in the microfinance sector. The assets on block represent 4.8% of the bank’s microfinance portfolio, valued at ₹32,723 crore as of September 30.

IndusInd Bank will auction microfinance NPAs via a public bidding process on a 100% cash basis, as per the auction document. The lender has fixed a reserve price of ₹85 crore for the auction, which would result into a recovery of 5.04% of the total principal amount of these loans. Interested bidders can submit their proposals by December 30.

Snapping two sessions losing streak, IndusInd Bank shares rose as much as 4.1% to ₹970.50 on the BSE. At the time of reporting, the largecap banking stock was trading 3.2% higher at ₹961.85, with a market capitalisation of ₹74,933 crore.

The shares of IndusInd Bank touched its 52-week high of ₹1,694.35 on January 15, 2024 and a 52-week low of ₹927.05 on December 20, 2024. The counter has lost 40% each in the calendar year 2024 and in the last one year. The stock has seen a correction of 36% in six months and 4% in a month.

For the second quarter ended September 30, 2024, IndusInd Bank reported a 39% year-on-year (YoY) drop in its net profit to ₹1,325 crore, dented by near doubling of loan loss provisions during the quarter. The provisions and contingencies spiked to ₹1,820 crore in Q2 FY25, up 87% over ₹974 crore in the year ago period.

The net interest income (NII) rose 5% YoY to ₹5,347 crore, while the net interest margin (NIM) dropped to 4.08% from 4.29% in the same period last year.

On the asset quality front, gross non-performing asset (NPA) and net NPA ratios were reported at 2.11% and 0.64%, respectively, against 1.93% and 0.57% in the year ago period.

Post Q2, brokerages mostly maintained ‘BUY’ call on the stock, but cut the target price, citing that slower growth and clouded asset quality outlook will keep the stock under pressure in the near-term.

ICICI Securities retained ‘BUY’ on IndusInd Bank with a revised target price of ₹1,600 from ₹1,900 estimated earlier. “We are more disappointed on the weak revenue/PPOP growth, which has been disproportionately impacted by weak growth in high-yielding microfinance (MFI) and vehicle segments. Due to a sharp rise in 30dpd book in the MFI segment, we could possibly see higher segmental slippages in the near term, which may weigh on NIM as well,” it said in a note.

Motilal Oswal has also reiterated ‘BUY’ with a target price of ₹1,500 per share. “While the MF and Card businesses may continue to report some stress in the near term, overall slippages are likely to remain in control and help maintain broadly stable asset quality. We cut our earnings estimates by 16.7%/8.7% for FY25/26, leading to an RoA/RoE of 1.6%/13.6% by FY26.”

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