IndusInd Bank Reviews Large Business Lending Strategy
The private sector lender IndusInd Bank Ltd. is reviewing its corporate lending strategy as it faces an outflow of deposits, growing risk in the economy and a management transition.
The lender experienced a sharp drop in its share price, each of these concerns have gathered in recent months, causing investor sentiment towards the lender to weaken.
Under the leadership of new chief executive Sumant Kathpalia, the bank is revising its exposure to large corporations and could reduce the size of this book if necessary, said two people familiar with the matter, who requested anonymity.
The strategy, these two officials said, is to look at exposures to large, interconnected companies and redirect direct lending to the best performing companies within the groups. The bank also tries to negotiate better terms with these groups of borrowers to ensure adequate security for these loans.
As a result of this review, the bank could see the size of its business loan portfolio shrink. As of December 2019, bank advances to businesses accounted for 46% of IndusInd Bank’s loan portfolio of Rs 2.07 lakh crore. Large corporate advances accounted for 25 percent of the pound.
Corporate advances are not the only pressure point for IndusInd Bank.
The lender is highly exposed to both vehicle financing and microfinance, which are already experiencing collection delays. Analysts also believe that the risk of possible defaults is higher in these segments. To deal with this risk, IndusInd Bank will pull out any growth from these portfolios, the people named above said.
As of December 31, 2019, the bank had auto loans worth 58,071 crore rupees and microfinance loans worth 20,757 crore rupees. These two together contributed 38 percent of the bank’s total loan portfolio.
On April 3, Moody’s Investors Service placed IndusInd Bank’s benchmark credit rating under review. “The bank’s loan portfolio includes a relatively higher proportion of microfinance and auto finance loans than its peers, which are at high risk of being negatively impacted by the economic shock,” Moody’s said in its statement. .
A spokesperson for the bank, when asked about the bank’s plan to reduce its exposure to large business loans, said that “private sector banks will engage with the relevant stakeholder to address any concerns that may be unfounded “.
On Tuesday, the bank said its total advances stood at around Rs 2.09 lakh crore on March 31, down from Rs 1.86 lakh crore a year ago. As of December 31st, the total advances amounted to Rs 2.07 lakh crore.