Indian Bank’s recent performance has been impressive, with a strong profitability driven by improved operating metrics and moderate provisions. The bank’s return on assets (RoA) increased by 6 basis points quarter-on-quarter to 1.39%. Additionally, asset quality indicators such as gross non-performing assets (GNPA) and net non-performing assets (NNPA) showed improvement, with a sequential decline of 22bps and 6bps respectively.
One of the key factors contributing to the better asset quality was lower slippages and higher write-offs during the quarter. Notably, slippages in the corporate segment were negligible, resulting in an overall decline in this metric. Furthermore, the standard restructured book also saw a decrease to about 1.2% of loans.
Looking ahead, it is anticipated that slippages will remain modest, given the recognition of stress from the bank’s legacy book. With a potential uptick in loan growth and a more favorable slippage trend, credit costs are expected to be manageable. Moreover, stable margins, strong fee income, and controlled operating expenses are expected to support decent operating performance.
Based on these factors, the bank is likely to deliver robust profitability in the medium term, with a sustainable RoA of over 1.2%. The target price for the stock is set at ₹686, utilizing a two-stage dividend discount model and implying a P/ABV multiple of around 1.1x on the FY27e book value.
Potential risks to this outlook include unexpected lumpy slippages from the corporate book and softer-than-anticipated loan growth. Overall, Indian Bank’s positive trajectory and focus on profitability bode well for its future performance.
