>INDIAN BANK (CENTRUM)

Postcard from Chennai

We met the Chairman and Managing Director, Mr. M S Sundararajan and General Manager – Treasury, Mr. S K Bandyopadhyay of Indian Bank to get an update on any significant events in the bank. We retain our estimates and reiterate Buy on the stock. We believe greater clarity on asset quality could propel the stock beyond our target price of Rs173.

■ Clarity on asset quality: The management clarified that of the Rs45bn restructured assets (on borrowerwise classification) at the end Q1FY10, Rs39bn represented rescheduled (the interest servicing was regular) principal repayments. Merely Rs6bn represented core restructuring, where the bank has made principal sacrifices.

■ Credit growth expected to increase in H2FY10: Credit growth is likely to remain tepid in H1FY10 with the management indicating advances of ~Rs530bn by end H1FY10, implying 8% growth YTD. The bank expects significant incremental credit expansion in H2FY10 (almost ~Rs80bn, 19.6% YoY growth), which has led it to adopt a relatively liquid balance sheet and
deploy funds at the shorter end of the yield curve.

■ Pressure on margins likely: The management expects to face some margin pressure owing to delayed credit expansion. It hinted at likely 10bp margin contraction from Q1FY10 levels of 3.5% by the year end.

■ Treasury update: The management indicated that roughly 60% of the bank’s treasury is classified as heldto- maturity (HTM), which accounts for around 22% of net demand and time liabilities (NDTL). The maximum permitted by RBI is 25%. The available-for-sale (AFS)
book is estimated to have a duration of 2.5 years.

■ Maintain estimates; reiterate Buy: The stock has lately re-rated to 1.23x FY10E P/BV. We believe greater clarity on asset quality could propel the stock beyond our target price of Rs173.

To see full report: INDIAN BANK