Rating Rationale
July 29, 2022 | Mumbai
IndusInd Bank Limited
Ratings Reaffirmed
 
Rating Action
Rs.1000 Crore Tier I Bonds (Under Basel III)CRISIL AA/Stable (Reaffirmed)
Rs.1000 Crore Tier I Bonds (Under Basel III)CRISIL AA/Stable (Reaffirmed)
Rs.2000 Crore Tier I Bonds (Under Basel III)CRISIL AA/Stable (Reaffirmed)
Rs.4000 Crore Tier II Bonds (Under Basel III)CRISIL AA+/Stable (Reaffirmed)
Rs.1500 Crore Infrastructure BondsCRISIL AA+/Stable (Reaffirmed)
Short Term Fixed Deposit ProgrammeCRISIL A1+ (Reaffirmed)
Rs.40000 Crore Certificate of DepositsCRISIL A1+ (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AA+/CRISIL AA[1]/Stable/CRISIL A1+' ratings on the existing debt instruments of IndusInd Bank Limited (IndusInd).

 

The rating reflects the healthy capitalisation levels with high core equity ratio and comfortable earnings profile marked by healthy pre-provisioning profits. These strengths are partially offset by the modest albeit improving resource profile, which remains average with relatively high share of bulk deposits, albeit, that retail deposits which has been a focus area of the Bank has been growing progressively. The Bank has comfortable liquidity buffer and has been maintaining liquidity coverage ratio (LCR) in the range of 124% to 148% since the past four quarters.

 

CRISIL Ratings’ rating on the Tier I bonds (under Basel III) of IndusInd Bank is as per the criteria 'CRISIL Ratings rating criteria for BASEL III-compliant instruments of banks'. CRISIL Ratings evaluates the bank's (i) reserves position (adjusted for any medium-term stress in profitability) and (ii) cushion over regulatory minimum CET1 (including CCB) capital ratios. Also evaluated is the demonstrated track record and management philosophy regarding maintaining sufficient CET1 capital cushion above the minimum regulatory requirements. The bank's eligible reserves to total assets remains comfortable at over 4%. Additionally, the bank has maintained healthy capitalization metrics with total capital ratio ranging above 14.0%-18.4% from March 31, 2016 till March 31, 2022 leading to an average CET1 capital buffer of 6.2% during the same period. The cushion over regulatory capital ratio along with high eligible reserves places the Bank in a comfortable position for servicing its Tier I bonds. A material reduction in this cushion would be a rating sensitivity factor for Tier I bonds.

 

Consequent to redemption, CRISIL Ratings has withdrawn its rating on Tier-I bonds (under Basel III) of Rs 2000 crore (See Annexure 'Details of rating withdrawn' for details) as CRISIL Ratings has received independent confirmation that these instruments are fully redeemed. The withdrawal is in line with CRISIL Ratings withdrawal policy.


[1] For Tier I bonds under Basel III

Analytical Approach

For arriving at the ratings, CRISIL Ratings has evaluated the standalone business and financial risk profile of IndusInd Bank.

Key Rating Drivers & Detailed Description

Strengths:

  • Healthy Capitalisation

Capitalisation metrics of the bank continued to remain healthy as reflected in CET1, Tier 1 and overall capital adequacy ratio (CAR) at 16.1%, 16.6% and 18.1% respectively as on June 30, 2022. The bank had raised around Rs 2,021 crore of equity capital through conversion of warrants issued to promoters in February 2021 and Rs 3,288 crore in September 2020 through preferential allotment.

 

  • Comfortable earnings profile with healthy pre-provisioning profits

The earnings profile of the bank is comfortable marked by healthy pre-provisioning profits. The bank has continuously reported return on assets (ROA) of around 1.8% in the five fiscals between fiscal 2014 and fiscal 2018. Since fiscal 2019 the ROA was impacted because of higher provisioning expense amidst some slippages. Historically the credit cost has was in the range of 0.4% to 0.7% between fiscal 2014 to fiscal 2018, which increased to 1.2% in fiscal 2019 due to one-off slippages in corporate loans. During Covid times, the credit costs for the bank stood at 1.6% and 2.4% for fiscal 2020 and fiscal 2021 respectively, which was a global phenomenon. However, with the re-opening of the economy, the credit costs for fiscal 2022 improved to 1.7% which has further improved to 1.2% (annualised) in Q1-fiscal 2023.

 

Nevertheless, the bank’s profitability is supported by the healthy net interest margins with some exposure to high yield segments such as vehicle finance and MFI. Additionally, the bank had a strong fee income of about 1.9% in fiscal 2022 which has supported the earnings profile.

 

Consequently, the bank’s ROA too has improved to 1.3% for fiscal 2022 (as compared to 0.9% for fiscal 2021) and annualised ROA of 1.6% for first three months of fiscal 2022. The banks pre-provisioning profits is one of the highest in the industry and has remained comfortable which stood at Rs 13,098 crore for the fiscal 2022 at 3.4% of average assets and was at 3.4% (annualised) of average assets for Q1 of fiscal 2023. The provisioning cover ratio (PCR) of the bank was 72% as on June 30, 2022. The bank has additionally set aside standard contingent provisions amounting to Rs 3,003 crore and the standard asset provisions (other than covid related) stood at Rs 10.95 Crs as on June 30, 2022.

 

Weaknesses:

  • Asset Quality remains monitorable

In the past, the reported asset quality metrics for both corporate and retail segments have been range bound with overall GNPA between 1.0%-1.2% during March 31, 2014 to December 31, 2018. Since fiscal 2019, due to slippage of some corporate accounts and with COVID 19 related stress in the past fiscal, the gross NPA had increased steadily to 2.9% as on June 30, 2021, which has thereafter improved to 2.4% as on June 30, 2022. The GNPA of the Bank is one of the lowest in the industry, with adequate provision coverage of 72%. CRISIL Ratings analysis of the top exposures comprising around 69% of the total large and mid-corporate loan book indicate that the GNPA levels are not likely to deteriorate from the current levels in the near term. In the corporate segment, the Bank has exposure to Real Estate developers, Hospitality sector and Gems & Jewellery segments, while on the retail side the bank has exposure to microfinance (MFI) and vehicle finance book which are inherently vulnerable to an economic downturn.

 

The restructured book accounted for 2.1% of the total advances as on June 30, 2022 (as compared to 2.7% as on June 30, 2021). CRISIL Ratings also understands that the restructuring in the corporate segment is insignificant. The other major restructuring segment is vehicle finance space. As the portfolio grows going forward, ability of the bank to control asset quality metrics remains a key monitorable.

 

  • Moderate resource profile

The bank has tried to shore up the resource profile with increasing share of retail deposits. As per LCR disclosure of June 2022, the retail and small business component in total deposits has shown an increase of 18% year-on-year and stood at about 38% of total deposits. Overall, the deposit base for the bank increased to Rs 302,719 crore as on June 30, 2022 from Rs 267,233 crore as on June 30, 2021. However, the reliance on bulk deposits remains moderately high, albeit declining. The CASA ratio of the bank stood at 43.1% as on June 30, 2022. Concentration in top 20 depositors is also high at 17% but has been progressively declining with growth in retail and small business deposits. The Bank continues to focus on ramping up the deposit base by tapping other customer segments.

 

The average cost of deposits of the bank was 4.8% for fiscal 2022 and was higher than that of similar rated peers. Nevertheless, the Bank’s ability to sustain its retail deposit base as it steadily optimises the deposit rates will be a key monitorable.

Liquidity: Strong

The bank's liquidity position is comfortable with liquidity coverage ratio at 124% as on June 30, 2022, against the regulatory requirement of 100%.  As per LCR disclosure of June 2021, the retail and small business component in total deposits has shown an increase of 18% year-on-year as on June 30, 2022 and stood at about 38% of total deposits. The Bank continues to focus on ramping up the deposit base by tapping other customer segments.

 

ESG Profile

CRISIL Ratings believes that Indusind Bank’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.

 

The ESG profile for financial sector entities typically factors in governance as a key differentiator between them. The sector has reasonable social impact because of its substantial employee and customer base and can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on the environment.

 

Indusind Bank has an ongoing focus on strengthening various aspects of its ESG profile.

 

Indusind Bank’s key ESG highlights: 

  • IndusInd Bank has committed to reducing its carbon footprint by 50% by FY 2024-25 over the baseline of FY 2019-20. The Bank also plans to reduce its absolute emissions by 50% by FY 2030-31.
  • The Bank has sanctioned credit of close to '17,251 crores as on March 31, 2021 for setting up renewable energy projects of 4,568 MW capacity since 2015. These projects include solar, wind, biomass or biogas and small hydro projects, renewable energy products and renewable energy production/transmission and distribution.
  • The bank’s total ESG focused lending increased from 42% in fiscal 2020 to 45% in fiscal 2021.
  • As a part of social financing, the Inclusive Banking group of the bank has provided loans to 8.38 million women in fiscal 2021.
  • There was an increase of 63% in the total number of rural customers in fiscal 2021 as compared to the previous year.
  • Majority of the bank’s board members are independent directors. None of the independent directors have tenure of more than 10 years and there is a segregation in chairperson and executive positions. The bank has a dedicated investor grievance redressal mechanism and the disclosures put out by it are extensive.

 

There is growing importance of ESG among investors and lenders. Indusind Bank’s commitment to ESG will play a key role in enhancing stakeholder confidence, given high shareholding by foreign portfolio investors and access to both domestic and foreign capital markets.

Outlook: Stable

CRISIL Ratings believes IndusInd Bank will maintain its healthy capitalisation and comfortable pre-provisioning profitability.

Rating Sensitivity factors

Upward factors

  • Improvement in resource profile with a higher share of retail deposits and lower cost of deposits in comparison to peers
  • Continued growth momentum with asset quality metrics remaining comfortable and capital position remaining strong with CET1 ratio (including CCB) remaining above 13% on a sustained basis

 

Downward factors

  • Higher than expected deterioration in asset quality or earnings profile
  • Decline in capital adequacy ratios (including CCB) with CET I remaining below 11% on sustained basis
  • Sustained outflow in deposits

About the Company

IndusInd Bank is a new-generation private-sector bank; it commenced operations in 1994. The bank has a pan-India presence, with around 5221 branches (including 2385 branches of BFIL) and 2870 automated teller machines (ATMs) as on June 30, 2021. It also has representative office in Dubai, Abu Dhabi and London. The bank has multilateral ties with other banks, ensuring access to more than 95,000 ATMs for its customers. It has four divisions: corporate and commercial banking, consumer banking, global markets group, and transaction banking.

Key Financial Indicators

As on / for the period ended

Unit

3 months ended

June 2022

March 2022

March 2021

Total Assets

Rs crore

410,100

401,967

362,903

Total income

Rs crore

10,113

38,230

35,501

Profit after tax

Rs crore

1,631

4,805

2,930

Gross NPA (standalone)

%

2.4

2.3

2.7

Overall capital adequacy ratio (standalone)

%

18.1

18.4

17.4

Return on assets*

%

1.6

1.3

0.9

*annualised

Any other information: Not applicable

 

Note on complexity levels of the rated instrument:

CRISIL Ratings complexity levels are assigned to various types of financial instruments. The CRISIL Ratings complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

 

Note on Tier-I instruments (under Basel III)

The distinguishing features of non-equity Tier-I capital instruments (under Basel III) are the existence of coupon discretion at all times, high capital thresholds for likely coupon non-payment, and principal write-down (on breach of a pre-specified trigger). These features increase the risk attributes of non-equity Tier-I instruments over those of Tier-II instruments under Basel III, and capital instruments under Basel II. To factor in these risks, CRISIL Ratings notches down the rating on these instruments from the bank's corporate credit rating. The rating on the bank’s Tier-I Bonds (under Basel III) is lower by one notch from the bank's corporate credit rating, in line with CRISIL Rating’s criteria (refer to ‘CRISIL’s rating criteria for Basel III-compliant instruments of banks’).

 

The factors that could trigger a default event for non-equity Tier-I capital instruments (under Basel III), resulting in non-payment of coupon, include: i) the bank exercising coupon discretion, ii) inadequacy of eligible reserves to honour coupon payment if the bank reports low profit or a loss, or iii) the bank breaching the minimum regulatory common equity Tier (CET) I ratio. Moreover, given their additional risk attributes, the rating transition for non-equity Tier-I capital instruments (under Basel III) can potentially be higher than that for Tier-II instruments.

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

 

Name of Instrument

Date of Allotment

Coupon Rate (%)

Maturity Date

Issue Size (Rs. Cr)

Complexity of Instrument

Rating Outstanding

with Outlook

NA

Tier-II Bonds

(under Basel III)*

NA

NA

NA

1,200

Complex

CRISIL AA+/Stable

INE095A08058

Bond

09-Dec-16

7.6%

09-Dec-26

1500

Simple

CRISIL AA+/Stable

INE095A08090

Tier-II Bonds

(under Basel III)

29-Oct-21

8.11%

29-Oct-31

2800

Complex

CRISIL AA+/Stable

INE095A08082

Tier-I bonds

(under Basel III)

28-Mar-19

10.5%

Perpetual

2000

Highly Complex

CRISIL AA/Stable

NA

Short-Term Fixed Deposit Programme

NA

NA

NA

-

Simple

CRISIL A1+

NA

Certificates of Deposit

NA

NA

7-365

40000

Simple

CRISIL A1+

*Yet to be issued

 

Annexure - Details of Rating Withdrawn

ISIN

Instrument

Date of issuance

Coupon rate (%)

Maturity Date

Complexity of instrument

Issue Size

INE095A08066

Tier-I bonds (under Basel III)

22-Mar-17

9.5%

Perpetual

Highly Complex

1000

INE095A08074

Tier-I bonds (under Basel III)

18-Apr-17

9.5%

Perpetual

Highly Complex

1000

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Certificate of Deposits ST 40000.0 CRISIL A1+   -- 20-08-21 CRISIL A1+ 27-03-20 CRISIL A1+ 20-03-19 CRISIL A1+ CRISIL A1+
      --   -- 31-03-21 CRISIL A1+   -- 26-02-19 CRISIL A1+ --
Infrastructure Bonds LT 1500.0 CRISIL AA+/Stable   -- 20-08-21 CRISIL AA+/Stable 27-03-20 CRISIL AA+/Stable 20-03-19 CRISIL AA+/Stable CRISIL AA+/Stable
      --   -- 31-03-21 CRISIL AA+/Stable   -- 26-02-19 CRISIL AA+/Stable --
Short Term Fixed Deposit Programme ST 0.0 CRISIL A1+   -- 20-08-21 CRISIL A1+ 27-03-20 CRISIL A1+ 20-03-19 CRISIL A1+ CRISIL A1+
      --   -- 31-03-21 CRISIL A1+   -- 26-02-19 CRISIL A1+ --
Tier I Bonds (Under Basel III) LT 4000.0 CRISIL AA/Stable   -- 20-08-21 CRISIL AA/Stable 27-03-20 CRISIL AA/Stable 20-03-19 CRISIL AA/Stable CRISIL AA/Stable
      --   -- 31-03-21 CRISIL AA/Stable   -- 26-02-19 CRISIL AA/Stable --
Tier II Bonds (Under Basel III) LT 4000.0 CRISIL AA+/Stable   -- 20-08-21 CRISIL AA+/Stable   --   -- --
All amounts are in Rs.Cr.

                                                                                                

Criteria Details
Links to related criteria
Rating Criteria for Banks and Financial Institutions
CRISILs Criteria for rating short term debt
Rating criteria for Basel III - compliant non-equity capital instruments

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