Indusind Bank : Pioneering Efforts Pave The Way For Good Growth

IndusInd Bank was inaugurated in April 1994 by Dr. Manmohan Singh, the then Union Finance Minister, and started operations under the chairmanship of S P Hinduja with the main goal of serving the NRI community. The Indus Valley Civilisation, one of the best historical examples of the fusion of innovation with ethical business and trade practices, served as the inspiration for the name IndusInd Bank. It is the first among the new-generation private banks in India. With approximately 2,000 branc++hes nationwide, more than 5,000 distribution points and over 2.5 crore customers, IndusInd Bank is a universal bank with a widespread banking footprint.

It provides a wide range of products and services to both individuals and businesses, such as microfinance, credit cards, personal loans, vehicles loans and loans for small-sized and medium-sized businesses. It is also a preferred banking partner for numerous government agencies, PSUs and large corporations. Some of the bank’s primary goals under its vision include being a relevant banking partner, collaborating with all stakeholders to deliver sustainable growth and leading the market in terms of productivity, technology and efficiency.

Sector Overview

India’s banking sector contributes significantly to the country’s economy and is a crucial one from a strategic perspective. The banking industry in India is well-regulated and adequately capitalised. In addition to cooperative credit institutions, the Indian banking system includes 12 public sector banks, 22 private sector banks, 45 foreign banks, 56 regional rural banks, 1,485 urban cooperative banks and 96,000 rural cooperative banks. All issues relating to the Indian banking industry are handled by the Ministry of Finance, Indian Bank’s Association and Reserve Bank of India. 

The Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Mudra Yojana, Atal Pension Yojana (APY) and StandUp India Scheme are a few of the significant government initiatives implemented in the banking sector in India. Government initiatives and new developments have recently been seen in the Indian banking sector. In the Union Budget of 2022-2023, India announced plans for a central bank digital currency (CBDC), which may be referred to as the digital rupee. To encourage more retail participation in government securities, RBI introduced the RBI Retail Direct Scheme for retail investors.

The government has successfully completed the consolidation move, resulting in the elimination of eight public sector banks. The banks will hand over 15 non-performing loans (NPLs) to the National Asset Reconstruction Company, totalling `50,000 crore. Bank assets shot up in all areas of the economy in 2020-2022. The total assets of the public and private banking sectors were, respectively, USD 1,594.41 billion and USD 925.05 billion in 2022. 

Financial Overview

For IndusInd Bank, the income from interest was reported at ₹8,181.77 crore for the first quarter of FY23, an increase of 8.01 per cent from ₹7,574.70 crore for the same period last year. From Q1FY22’s level of ₹9,298.07 crore to ₹10,113.29 crore in Q1FY23, the total income surged by 8.77 per cent. The bank had phenomenal growth in the first quarter of FY23, achieving a net profit of ₹1,631.02 crore as opposed to ₹1,016.05 crore in the first quarter of FY22. On a yearly basis, the bank reported interest income of ₹30,822.44 crore for FY22, up 6.29 per cent from ₹28,999.80 crore for FY21. From ₹35,500.68 crore for FY21 to ₹38,230.07 crore for FY22, thetotal income soared by 7.69 per cent. 

In FY22, the bank reported net profit of ₹4,804.63 crore, an outstanding increase of 63.99 per cent from the net profit of ₹2,929.88 crore in FY21. The bank began operations with a capitalisation of ₹100 crore, of which ₹60 crore were raised by Indian residents and ₹40 crore by non-resident Indians (NRI). The market valuation of the bank is around ₹91,600 crore. Under the category of foreign promoters, promoters owned 16.51 per cent of the bank as of March 31, 2022. A total of 66.85 per cent of the stock is owned by institutions, of which foreign portfolio investors control a massive 45.83 per cent and non-institutional investors possess 16.64 per cent.

To gain a more comprehensive financial picture, we analysed a total of six private sector banks with market capitalisations ranging from ₹30,000 crore to ₹1 lakh crore. The banks chosen for the analysis were IndusInd Bank, IDBI Bank, Bandhan Bank, AU Small Finance Bank, Yes Bank and IDFC First Bank. In terms of EPS, IndusInd Bank outperforms its competitors as it has generated respectable earnings per share and has the highest EPS of any bank. Furthermore, when compared to other banks, its price to earnings (PE) ratio is the lowest. 

The bank generates average profitability per unit of the total capital with return on equity (ROE) and return on capital employed (ROCE) of 10 per cent. The quality of the bank’s assets improved with the gross non-performing assets (NPAs) getting better at 2.35 per cent of the gross advances in Q1FY23 as against 2.88 per cent in the year-ago period. The stock’s 52-week high and low levels are, respectively, ₹1,275.25 and ₹763.75. On a year-to-date basis, the stock has soared about 30 per cent and has experienced the greatest recovery from its 52-week low.

Outlook

The Pradhan Mantri Jan Dhan Yojana (PMJDY), a flagship initiative, was introduced in August 2014 with the goal of providing universal banking services to the unbanked through the creation of bank accounts and the issuance of payment cards to everyone. More than 45 crore bank accounts have been opened as part of this scheme and beneficiaries have received deposits totalling `1.68 trillion. Aadhaar, e-KYC, e-signing, privacy-protected data sharing and the UPI are the five key programmes that are covered by the open API policy that the government mandated as part of the ‘Digital India’ initiative.

Over 90 per cent digital payments (by volume) are made via mobile phone thanks to internet banking, mobile banking and the growth of digital products and solutions offered by the private and public sectors in India. By 2030, India will have the third-largest consumer economy in the world owing to its young population, which comprises 65 per cent of those under the age of 35. India is the second-largest market for internet users and already has the second-highest number of smart phone users worldwide.

India’s improved digitalisation status has given the banking sector access to new markets in semi-urban and rural areas. And in the future, these elements will unquestionably be growth drivers for the industry. Additionally, it is anticipated that increased infrastructure spending, rapid project execution and continued reforms will fuel banking sector growth. All of these indicators point to the banking sector in India being well-positioned for strong growth as rapidly expanding businesses turn to banks for their credit needs. Returning to IndusInd Bank, it has been a pioneer among India’s new generation of private banks. Today, the bank is the fifth-largest private bank and the second-largest microfinance lender. 

The diverse loan book, stable asset quality, healthy capital adequacy, good profitability, large distribution network and strong product groups are among its key strengths. The bank’s total income, interest income and net profit margins were all increasing rapidly with each passing quarter. Different growth ratios, such as operating profit growth, net profit growth, and EPS growth, are unprecedented. The bank has a low price to earnings (PE) ratio. The stock, according to this viewpoint, is undervalued, and the present share price is low compared to its earnings. Therefore, this stock can be a great choice for patient investors. Given the great long-term prospects for the Indian banking sector and IndusInd Bank’s potential for significant growth in the near term, we recommend BUY.