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    IndusInd falls 8% in biggest 1-day decline in a decade

    Synopsis

    A provision of Rs 275 crore made toward its exposure in IL&FS Group has not gone down well with investors.

    Indusind-bccl
    To be sure, most analysts tracking the bank still have a bullish view
    Mumbai: Shares of IndusInd Bank fell 8.5 per cent on Monday, its biggest single day decline in about a decade, after some broking firms raised concerns over its exposure to the troubled IL&FS Group.

    A provision of Rs 275 crore made toward its exposure in IL&FS Group has not gone down well with investors, according to analysts. The IndusInd stock declined the most since July 6, 2009.

    The bank, according to market estimates, has an exposure of more than Rs 1,000 crore to the holding company of IL&FS, where the lender had the rights over cash flows coming from the rights issue of IL&FS. The rights issue, according to news reports, has been postponed.

    “Investors believe that the provision of Rs 275 crore done on IL&FS is only done for the holding company, which effectively means the overall exposure to IL&FS Group, including SPV funding done by them, is much higher if one were to assume that Rs 275 crore equates to just 20-25 per cent provisioning done on the holding company,” said a note by Macquarie.

    The stock, which has fallen 30 per cent since August 1, trades at 2.7 times FY 2020 estimated price to book.

    In June, IndusInd Bank said it has signed a share purchase agreement with IL&FS and other minority shareholders to acquire 100 per cent of IL&FS Securities Services, a subsidiary of IL&FS. However, the fate of the acquisition is now uncertain as ICRA last week placed the rating of IL&FS Securities under watch.

    To be sure, most analysts tracking the bank still have a bullish view, saying that the lender has strong loan growth and earnings power and it can easily negotiate the recent challenges.

    “We do not feel any unease on our understanding on the bank’s comfortable risk profile,” said Parul Gulati, analyst, Karvy Stock Broking.

    Hatim Broachwala, analyst, IDBI Capital, also said that the asset quality of the bank has been stable, and is one of the best in the sector.

    “Momentum in balance sheet growth has further picked up with loan growth of 32 per cent in the September quarter…While NII growth of 21 per cent is in line with our expectations, PAT growth is muted at 5 per cent due to one-off standard asset provision…. made toward its IL&FS Group exposure,” Broachwala added.



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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