India's demonetisation policy helped IndusInd Bank Ltd post a surprise record quarterly profit as surging deposits following the cash ban eased the lender's funding costs and allowed it to extend more loans.
Net income at the first bank to report earnings since the ban two months ago climbed 29 per cent to Rs751 crore ($110 million) in the three months ended 31 December, the Mumbai-based lender said in an exchange filing on Tuesday. That beat the Rs730 crore average of seven analyst estimates compiled by Bloomberg.
The result defied earlier worries that the cash ban on 8 November would hurt IndusInd because of its loans to the cash-intensive trucking industry - concerns that dragged the bank's shares down as much as 14 per cent.
Prime Minister Narendra Modi's move to invalidate high-value currency notes took about four-fifths of the nation's paper money out of circulation and threw the economy into disarray as millions lined up at banks to deposit their now-useless notes or exchange them for new ones.
''There was a huge amount of conjecture on how banks would fare due to the disruptive market events,'' chief executive officer Romesh Sobti told reporters in Mumbai after the earnings were announced. ''We managed to ride the headwinds and tailwinds and come out on top.''
IndusInd saw its deposits surge 38 per cent in the December quarter, easing its cost of funding and boosting its net interest income by 35 per cent, the filing showed. Lending rose by 25 per cent as the bank boosted commercial and utility vehicle loans, which account for about a fifth of advances.
Demonetisation encouraged delinquent customers to make repayments, benefiting the bank's asset quality, Sobti said. ''We were surprised to see some of the written-off assets also getting repaid,'' he said.
IndusInd's nonperforming loans as a proportion of total lending were little changed at 0.94 per cent in the December quarter, the filing showed. That's one of the lowest rates among Indian lenders, which had an average NPL ratio of 9.1 per cent as of September, central bank data show.
For IndusInd, the government's move had raised earlier concerns about the ability of truck owners to repay their loans after demonetisation left them without cash to buy fuel or pay drivers their daily food allowance. IndusInd's exposure to the commercial vehicle segment and micro-finance sector is ''holding up well,'' in terms of asset quality and credit growth, Sobti said.
''Banks which managed the liquidity surge and deployed the funds effectively have come out well'' after the cash ban, Sobti said. ''If we couldn't deploy the deposits it would have become a drain on profits.''