IndusInd Bank falls despite stable asset quality

IndusInd bank and Bandhan Bank reported their financial numbers for the recently concluded third quarter of the current fiscal year on Tuesday. The bad debt provisions made by banks can be expected to decide the trend of the banking stocks in near future.

The banking industries performance is decided on many factors such as asset quality (NPAs), deposit growth, loan book growth and provisions for probable defaults of the outstanding loan assets. The early trend of the third quarter performance as depicted from the results of IndusInd bank and Bandhan indicates that provisioning number may also decide the stock performance of the banks.

The IndusInd Bank reported a healthy performance of asset quality and profitability front with a gross NPA of 2.18 per cent in comparison to 2.19 per cent at the end of the previous quarter as well as 32 per cent rise in net profits. However, the street reacted negatively to the 72 per cent YoY rise in provisions while, the stocks closed down by nearly 4 per cent. Bandhan Bank, too, reported improved asset quality parameters with a gross NPA of 1.93 per cent as against 2.41 per cent. But investors took 22 per cent decline in provisions as a key trigger, which helped the stocks to rise 4 per cent from day lows and close 1 per cent higher on Tuesday.

The provisions play a significant role as they do not just show a declining trend in loan assets but also decide net profit of the banks. Hence, after looking at the banking results, investors must pay heed to this important parameter before taking any investment decision.