ING Vysya Bank Faces Margin Pressure Despite Good Growth

ING Vysya Bank announced its March quarter and full financial year 2011-12 results post the market closure. Both topline and bottomline of the bank showed good growth. However, despite posting good growth the stock is trading almost 3 per cent lower at Rs 362.85. This is on the back of the net interest margin which remained stable at 3.29 per cent on a YoY basis while the margins shrank by 20 basis points on a sequential basis. 

For the March quarter, the net interest income (NII) increased by 19 per cent to Rs 319.2 crore. Its net profit increased by 39.52 per cent to Rs 127.39 crore against the street expectations of around Rs 120.5 crore. The bank posted good bottomline growth despite making higher provisioning which increased to Rs 56 crore from mere Rs 4 crore in a similar period last year.

Further, in the current high interest rate regime the bank saw substantial improvement in its assets quality, which is very commendable. In the current scenario most of the banks are facing pressure on their asset quality front, but the case for ING bank is different. Its net NPAs decreased by 21 basis points to 0.18 per cent which could be considered as one of the lowest in the industry. Further, the bank strengthened its provision coverage ratio which increased by 726 basis points to 90.67 per cent. This probably indicates that the bank may not see pressure on the asset quality front going ahead.

The bank had witnessed decent business growth with both the deposit and advances growing above the RBI projections of 15.5 and 16 per cent for FY12.  As on March 31, 2012, the deposits of the bank increased by 17 per cent to Rs 35,195 crore while advances grew at 22 per cent to Rs 29,247 crore.

The revenue from the treasury operations increased by 45 per cent to Rs 971 crore and profit from the segment increased by 32 per cent to Rs 52.58 per cent. The retail banking segment saw robust growth as it posted profit of Rs 49 crore against Rs 17.62 crore in a similar period last year.

Now let us also look at the financial year 2011-12 numbers. The net interest income increased by 20 per cent to Rs 1,208 crore while the other income of the bank grew marginally by 2 per cent to Rs 669 crore for FY12. The cost to income ratio for the full year decreased by 264 basis points to 59.11 per cent. The bank posted robust growth in its bottomline as net profit grew by 43 per cent to Rs 456 crore.

Overall we believe that the bank posted good numbers but it faced headwinds on the net interest margin (NIM) front. The cost to income ratio of the bank decreased but we feel that the ratio is still on the higher side which indicates that the bank is not operating at its full efficiency. With the interest rate taking a U-turn, the bank’s NIM will improve going ahead. On the valuation front the bank is available at a price to book value of 1.39 times which is decent enough. We would advise investors to invest in the scrip in a staggering manner as there could be some downside in the scrip keeping in mind a longer term horizon.