Why did the profits of IndusInd Bank fall so sharply in the quarter ended Dec-20?

IndusInd Bank net profit for the Dec-20 quarter fell sharply by 36.6% to Rs.830 crore on account of higher provisioning for loan losses. In fact, the bank reported a very small -2.06% decline in total revenues for the Dec-20 quarter at Rs.8,887 crore.

In terms of specific verticals, IndusInd Bank also saw a sharp spike in treasury revenues and a small 2% hike in retail banking earnings. Corporate banking revenues were down nearly 20% yoy. This trend is in line with most of the other private and PSU banks.

For the Dec-20 quarter, operating profits were up 7.46% at Rs.2,964 crore on account of the sharp 10% fall in interest costs which is tune line with falling rates and surplus liquidity in the system. As a result of that, the operating margin or OPM was enhanced from 30.39% in Dec-19 to 33.35% in Dec-20 quarter.

PAT for the Dec-20 quarter was surprisingly down 36.6% at Rs.830 crore. What explains this sudden fall? This fall in net profits can be explained by the 80% spike in the provisioning for loan losses made in the current quarter which amounted to a whopping Rs.1,854 crore. As a result, the PAT margins fell sharply from 14.43% to 9.34% on a yoy basis in Dec-20.

The good news was that the bank saw gross NPAs lower at 1.74%. However, with substantial chunk of the provisioning already done, the net NPAs were only around 0.22%. The return on assets or ROA at above 1% is fairly attractive but the sharp halving is due to the huge provision made. The real worry could be capital adequacy. With capital adequacy at just about 16%, the bank may need more of an equity boost before it can build the asset book.