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ING Vysya Bank: The prov. writeback boost - Views on News from Equitymaster

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ING Vysya Bank: The prov. writeback boost
Aug 23, 2011

ING Vysya Bank declared the results for first quarter of financial year 2011-12 (1QFY12). The bank has reported 48% YoY growth in interest income for 1QFY12 while net profits have grown by 36% YoY. Here is our analysis of the results.

Performance summary
  • Interest income grows 48% YoY in 1QFY12 backed by 26% YoY growth in advances.
  • Net interest margin drops to 3.0% from 3.3% in 1QFY11, due to marginally lower proportion of CASA.
  • Cost to income ratio moves up from 59% to 64% in the last 12 months.
  • Bottomline grows 36% YoY in 1QFY12 due to write back of loan loss provisioning.
  • Capital adequacy ratio comfortable at 15.9% at the end of June 2011.


(Rs m) 1QFY11 1QFY12 Change
Interest income 5,876 8,707 48.2%
Interest Expense 3,496 6,088 74.1%
Net Interest Income 2,380 2,619 10.0%
Net interest margin (%) 3.3% 3.0%  
Other Income 1,244 1,405 12.9%
Other Expense 2,138 2,556 19.6%
Provisions and contingencies 439 62 -85.9%
Profit before tax 1,047 1,406 34.3%
Tax 356 466 30.9%
Profit after tax/ (loss) 691 940 36.0%
Net profit margin (%) 11.8% 10.8%  
No. of shares (m)   149.5  
Book value per share (Rs)*   240.0  
P/BV (x)   1.4  
*Book value as on 30th June 2011

What has driven performance in 1QFY12?
  • Despite a reasonable growth in asset book (26% YoY growth) and accretion of low cost deposits, ING Vysya Bank failed to maintain its net interest margins in 1QFY12. This was one of the fastest growth in the past 2 to 3 years. 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's proportion of CASA deposits remained stagnant at 34% in 1QFY12. As the bank grows its franchise and re-prices its assets, we expect them to bring in more stability in ING's margins.

  • Having the blemish of bearing one of the highest cost to income ratio in the sector, ING Vysya had effectively put an effort on this front in FY10. However, with expansion of franchise and employee base, the cost to income ratio has once again gone up from 59% in 1QFY11 to 64% in 1QFY12. The same continues to stay well above that of private sector banks and some PSU banks.

  • ING Vysya has in the past few quarters also addressed its concerns with regard to its lower provision coverage. The bank's NPA coverage ratio has gone up from 59% to 84% in the past 12 months. While the net NPA level has come down to 0.4% from 1.4% in the past 12 months, the gross NPAs decreased from 3.3% of advances in 1QFY11 to 2.2% of advances in 1QFY12. The bank believes that most of the slippages that were coming from personal loans segment have now been curtailed. The writeback of excess provisioning have boosted the bank's bottomline this quarter.

  • The proportion of other income to total income has remained stagnant at 34% over the years and needs improvement to enhance the quality of earnings.

    Focusing on cost
    (Rs m) 1QFY11 % of total 1QFY12 % of total Change
    Advances 189,764   238,225   25.5%
    Deposits 242,053   313,125   29.4%
    CASA 82,274 34.0% 105,899 33.8% 28.7%
    Term deposits 159,779 66.0% 207,226 66.2% 29.7%
    C/D ratio 78.4%   76.1%    

    What to expect?
    At the current price of Rs 306, the stock is trading at 1.1 times our estimated FY14 adjusted book value. While we are enthused by the bank's enhanced balance sheet growth and higher emphasis on asset quality, margin sustainability and cost reduction measures are areas of concern. Going forward however, ING Vysya Bank is expected to have a streamlined approach for the future growth of the bank. We retain our long term positive view on the stock.

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