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ING Vysya Bank: Buoyed by capital boost
Jan 23, 2010

Performance summary
  • Interest income grows 2% YoY in 9mFY10 on the back of 9% YoY growth in advances.
  • Net interest margin improves to 3.1% in 9mFY10, due to higher proportion of CASA.
  • Cost to income ratio declines from 65% to 58% in the last 12 months.
  • Bottomline grows 25% YoY in 9mFY10 despite steep rise in provisioning costs.
  • Capital adequacy ratio moves up to 14.5% from 10.5% at the end of 9mFY09. ING Vysya raised Rs 4.1 bn capital by way of QIP and preferential allotment to promoter ING in 2QFY10.


(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Interest income 6,202 5,429 -12.5% 16,302 16,649 2.1%
Interest Expense 4,475 3,235 -27.7% 11,429 10,823 -5.3%
Net Interest Income 1,727 2,194 27.0% 4,873 5,826 19.6%
Net interest margin (%)       2.9% 3.1%  
Other Income 1,491 1,303 -12.6% 4,006 4,416 10.2%
Other Expense 2,153 2,039 -5.3% 5,850 5,927 1.3%
Provisions and contingencies 216 528 144.4% 847 1,641 93.7%
Profit before tax 849 930 9.5% 2,182 2,674 22.5%
Tax 328 324 -1.2% 784 931 18.8%
Profit after tax/ (loss) 521 606 16.3% 1,398 1,743 24.7%
Net profit margin (%) 8.4% 11.2%   8.6% 10.5%  
No. of shares (m)       102.5 119.4 102.8
Book value per share (Rs)*         187.0  
P/BV (x)         1.5  
*Book value as on 31st December 2009

What has driven performance in 9mFY10?
  • As the much needed capital came in at the fag end of 1HFY10, ING Vysya Bank had little option but to maintain a very gentle disposition during the first six months of this fiscal. However, things were different in the third quarter as the bank’s business picked up pace under the guidance of the new management. On the back of higher accretion of low cost deposits, ING Vysya Bank managed to grow its advance book by 9% in 9mFY10. While the bank has not divulged the breakup of advances into corporate and retail, large shares of its advances continue to remain concentrated in corporate and SME assets. The bank also managed to marginally improve the proportion of CASA deposits from 26% in 9mFY09 to 32% in 9mFY10, which helped improve its net interest margin (NIMs) to 3.1% (2.9% in 9mFY09). As the bank grows its franchise and re-prices its assets, we expect them to bring in more stability in ING’s margins.

    Focusing on cost
    (Rs m) 9mFY09 % of total 9mFY10 % of total Change
    Advances 160,135   175,153   9.4%
    Deposits 224,013   234,619   4.7%
    CASA 58,185 26.0% 75,640 32.2% 30.0%
    Term deposits 165,828 74.0% 158,979 67.8% -4.1%
    C/D ratio 71.5%   74.7%    

  • Having the blemish of bearing one of the highest cost to income ratio in the sector, ING Vysya has effectively put an effort on this front and pared the ratio from 65% in 3QFY09 to 58% in 3QFY10. This was despite the bank opening 27 branches and 112 ATMS in the past 12 months. The same, however, continues to stay well above that of private sector banks and some PSU banks. Employee costs comprised 49% of the bank’s operating costs in 9mFY10.

  • Our concerns about ING’s lax provisioning policies have been confirmed by the rise in slippage ratio for the bank. While deterioration in asset quality is not something that has been unique to ING Vysya in the past few quarters, its lower provision coverage has brought its asset quality inferior to that of most of its peers in the private sector. While the net NPA level increased to 1.7% from 1.1% of advances in 9mFY09, the gross NPAs increased from 1.8% of advances in 9mFY09 to 2.7% of advances in 9mFY10. However, going forward with the RBI’s mandate of 70% provision coverage, the bank will be getting its accounting policies in order.

  • The concerns with regard to the shortage of capital for the bank were addressed in the last quarter as ING Vysya raised Rs 4.1 bn capital by way of QIP and preferential allotment to promoter ING in 2QFY10. The same has shored up ING Vysya Bank CAR to 14.5% in 9mFY10, and will enable the bank to catch up on its balance sheet growth in the medium term.

What to expect?
At the current price of Rs 268, the stock is trading at 1.2 times our estimated FY12 adjusted book value. While we are enthused by the bank’s enhanced capital and cost reduction measures, lesser emphasis on asset quality is an area of concern. Under the leadership of the bank’s new Managing Director, Mr. Shailendra Bhandari (ex-MD of the erstwhile Centurion Bank of Punjab), ING Vysya Bank is expected to have a streamlined approach for the future growth of the bank. We retain our long term positive view and have revised our target price for the stock.

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