Ind-Ra Assigns IndusInd Bank’s Senior Bonds ‘IND AA+’/Stable

Ind-Ra-Mumbai-23 March 2015: India Ratings & Research (Ind-Ra) has assigned IndusInd Bank Limited’s (IBL) INR5bn senior unsecured redeemable bonds an ‘IND AA+’ rating with a Stable Outlook. A full list of outstanding ratings is at the end of this commentary.

KEY RATING DRIVERS

IBL’s ratings are driven by the continued improvement in its funding profile with a progressive decline in the share of wholesale deposits.  This share is likely to decline further with an increase in low-cost current and savings deposits’ share from 34% at end-December 2014 and a rise the retail term deposits’ share.

IBL’s resilience through robust pre-provision profitability and healthy capital position (Tier 1 ratio at 11.5% at end-December 2014) further support the ratings. IBL’s pre-provision profitability has been consistently increasing with 3.2% of assets in FY14 from 2.8% in FY13 and 2.6% in FY12; this is likely to sustain. The bank’s asset quality remains stable with gross NPL ratio of around 1.1% at end-December 2014. An improvement in the economic environment will likely result in the reversal of commercial vehicles (CV) cycle.

The senior bonds have a tenor of seven years which will further boost the asset-liability profile of the bank.

To read a detailed rating rationale, please click
here.

RATING SENSITIVITIES

Any sudden or unexpected increase in stressed assets coupled with reversal in the trend of improvement in funding could lead to the Outlook being revised to Negative.

An increase in the scale along with considerable improvement in liability franchise resulting in more competitive cost of funds while sustaining pre-provision profit buffers and maintaining above-average asset quality could change in Outlook to Positive.

COMPANY PROFILE

IBL is a new generation private bank that started operations in 1994. The bank is a significant player in financing commercial and other vehicles along with corporate working capital loans. IBL has regularly raised common equity in past few years from markets at significant premiums due to its strong profitability. It reached an assets size of INR1trn in December 2014 with net profit of INR12.9bn in 9MFY15 and INR14bn in FY14. The bank has 727 branches across the country.

IBL's outstanding ratings are as follows:
- Long-Term Issuer Rating: ‘IND AA+’; Outlook Stable
- Short-Term Issuer Rating: ‘IND A1+’
- INR3.08bn subordinated Upper Tier 2 bonds:  ‘IND AA’; Outlook Stable
- INR1.15bn subordinated Lower Tier 2 bonds: ‘IND AA+’; Outlook Stable
- INR5bn senior unsecured redeemable bonds: ‘IND AA+’; Outlook Stable

Contacts:

Primary Analyst
Siddharth Goel
Associate Director
+91 22 4000 1760
India Ratings & Research Pvt Ltd
Wockhardt Tower, West Wing, 4th Floor
Bandra Kurla Complex, Bandra (E)
Mumbai 400051

Secondary Analyst
Kunaey Garg
Analyst
+91 22 4000 1749

Committee Chairperson
Ananda Bhoumik
Senior Director
+91 22 4000 1720

Media Relations: Saraanya Shetty, Mumbai, Tel: + 91 22 4000 1729, Email:
saraanya.shetty@indiaratings.co.in.

Additional information is available at
www.indiaratings.co.in.The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

Applicable criteria, ‘Financial Institutions Rating Criteria' and ‘Rating of Bank Legacy Hybrids and Sub-debt Criteria’, both dated 12 September 2012, are available on www.indiaratings.co.in

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India Ratings & Research (India Ratings) has six rating offices located at Mumbai, Delhi, Chennai, Kolkata, Bangalore and Hyderabad. India Ratings is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.

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