Thailand Financial News

Fitch Ratings has affirmed IndusInd Bank Limited’s (IndusInd) National Long-term rating at ‘A(ind)’ with Stable Outlook. At the same time, the agency has downgraded the ratings of IndusInd’s INR3.08bn upper tier 2 bonds to ‘BBB+(ind)’ from ‘A-(minus)(ind)’.

IndusInd’s other ratings have been affirmed as follows:

- INR5.516bn lower tier 2 debt: affirmed at ‘A(ind)’ - National Short-term rating: affirmed at ‘F1(ind)’ - INR2.5bn certificates of deposit programme: affirmed at ‘F1(ind)’ - Individual rating: affirmed at ‘D’ - Support rating: affirmed at ‘5′ IndusInd’s National Long-term and Individual ratings have been affirmed to reflect the initiatives taken by its new management to mitigate the structural mismatch in its asset-liability profile (high proportion of fixed-rate vehicle finance loans being financed largely by rate-sensitive ‘wholesale’ deposits), which had led financials to deteriorate significantly between FY06 and FY08. The bank is gradually diversifying its loan portfolio, limiting the proportion of its fixed-rate loans and growing its retail liability franchise to remedy the mismatch. Some of IndusInd’s key financial parameters have started to improve, but the bank’s performance remains more vulnerable to interest rate volatility than other Indian banks and its financials remain weak (as reflected in the ‘D’ Individual rating). Consequently, the hybrid instruments’ notching has been widened to two notches (’BBB+(ind)’) to reflect the higher possibility of coupon deferral in the current adverse credit cycle. For further information please refer to the 14 November 2008 commentary, ‘Fitch to widen notching of 3 Indian banks’ hybrid debt national ratings’, available on the agency’s subscriber sites, www.fitchresearch.com and www.fitchindia.com. IndusInd’s NIM (net interest margin) improved to 1.8% in H1 ended September 2009 (FY08: 1.6%; systemic median: 2.9%) with gradual re-pricing of its vehicle finance portfolio. Fitch expects IndusInd’s yield on advances to improve further in FY09. However, the increase in personnel expenses (IndusInd has increased its staff by more than a third to facilitate development of its retail liability franchise) is likely to partially offset the impact of increasing NIM. Management’s strategic initiatives to ‘correct’ IndusInd’s asset-liability profile may take longer (more than 12 months) to deliver a sustained improvement in financials given the increasingly adverse operating environment. The bank’s return on assets during H109 was still low at 0.4%. While management expects asset quality ratios to improve in FY09 with recovery of a large non-performing corporate account (comprising 29% of total NPLs), IndusInd’s incremental NPL could increase in line with systemic trends as higher interest rates and slower GDP growth have affected borrowers’ repayment capacity. IndusInd’s loan loss coverage (H109: 27%) remains poor. In June 2008, IndusInd raised INR2.2bn equity through a Global depository receipts issue. The bank’s Tier 1 ratio improved to 8.1% from 6.7% at FYE08 following the issue and management expects to maintain the Tier 1 ratio above 7.5%. IndusInd is one of nine ‘new’ private banks that started operations in late 1994. Its founders own a 25.6% stake in the bank. IndusInd historically operated as a wholesale bank until FY04 when it merged with a specialised vehicle finance non-bank company, Ashok Leyland Finance Limited. The bank’s network of 180 branches is spread across India. A report on this entity will soon be available on the public site, –www.theasianbanker.com (November 21 2008)–