New Head of Best-Performing Asian Bank Plans Strategy Change

Updated on
  • Indian Bank to seek loan business with highly rated companies
  • Lender’s share price tripled in a year on consumer loan focus

An Indian Bank branch in New Delhi, India.

Photographer: Anindito Mukherjee/Bloomberg

The new head of state-owned Indian Bank wants to change a strategy that helped it become Asia’s top-performing bank stock over the past year.

After shunning corporate lending under its previous chief executive officer, Indian Bank’s new CEO Kishor Kharat says he wants to dive back in, albeit only to the best companies.

“We are going to approach highly-rated companies for business and we will get it,” said Kharat, who moved to Indian Bank from IDBI Bank after swapping jobs with former CEO Mahesh Kumar Jain. “If you shed the conservative approach this bank can grow. The target is to capture the potential offered by this bank that had been untapped so far,” Kharat added in an interview last month.

His predecessor’s strategy of prioritizing the consumer business over loans to companies helped turn Indian Bank into a high-flying stock, at a time when many Indian banks are weighed down by soured loans to large companies. The bank’s shares have more that tripled over the past year, the biggest increase of 203 Asian lenders valued at more than $1 billion, data compiled by Bloomberg show.

Indian Bank shares dropped as much as 3.6 percent in Mumbai on Tuesday, before paring some of the losses to trade just over 2 percent lower at 346.80 rupees at 10:26 a.m. The 10-member S&P BSE Bankex index was down 0.4 percent.

The 109-year-old company’s stressed-asset ratio, or bad and restructured loans as a proportion of total lending, stood at 10.74 percent as of March 31, filings show. That compares with the average 12.3 percent for the whole banking system as of September.

Consumer assets were 54 percent of the bank’s 1.26 trillion rupee ($19.6 billion) local lending at the end of March, while the corporate loan book shrank by 10 percentage points during the year to stand at 46 percent of the total. The lender has the highest percentage of retail loans among the country’s 21 listed state-controlled banks.

“If Indian Bank is going for highly-rated companies, then asset quality should not be a problem. But loan demand from companies is dull now and it is ideal to focus on retail. Consumer loans are more granular and defaults in few accounts will not affect performance ratios much,” said Praveen I, a banking analyst at Cholamandalam Securities Ltd. “That consumer focus is a key reason for the good run the stock is having.”

Improved Returns

Under the former CEO, Indian Bank’s return on equity almost doubled to 9 percent in 12 months to March 31, according to an investor presentation available on the bank’s website. Jain moved to the new bank in March, after about 17 months at the helm of Indian bank, with a view to improving IDBI’s profitability over the next five years, before he reaches retirement age, Kharat said.

All of the 9 analysts tracking Indian Bank recommend investors buy or hold the stock, giving it a consensus rating of 4.44 percent out of five, the highest among India’s state-run banks, according to ratings compiled by Bloomberg.

Kharat said he expects his new strategy will reverse the 0.4 percent decline in total loans the bank saw in the year to March 31, mainly due to the drop in corporate lending. He predicted growth of about 12 percent in the current financial year.

“In lending to corporates we were having a lot of inhibitions from the beginning. Now we have actually zeroed in on companies we want to do business with. They never knew so far this bank also has an appetite for their business,” said Kharat.

(Updates with Tuesday’s share price move in fifth paragraph.)
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