IndusInd Bank shares gained 2% in early trading on December 27 after the private lender announced plans to auction a non-performing microfinance loan pool worth ₹1,573 crore. This pool consists of 10.6 lakh retail loan accounts and reflects ongoing stress in the microfinance (MFI) sector.
Key Details of the Auction
- Loan Portfolio: ₹1,573 crore of microfinance non-performing assets (NPAs).
- Reserve Price: ₹85 crore (approximately 5% of the total principal amount).
- Bidding Process: Public auction on a 100% cash basis.
- Deadline for Proposals: Interested bidders must submit proposals by December 30, 2024.
The loans up for auction constitute 4.8% of the bank’s microfinance portfolio, which was valued at ₹32,723 crore as of September 30. The bank reported ₹2,259 crore in bad loans from the microfinance segment, contributing to its total gross NPAs of ₹7,639 crore at the end of Q2 FY24.
Brokerage Insights
DAM Capital has revised its target price for IndusInd Bank shares to ₹1,200, down from ₹1,600, while maintaining a ‘buy’ rating. However, the brokerage warned that the ongoing challenges in MFI lending will pressure profitability:
- Return on Assets (RoA): Expected to stay around 1% in FY25.
- Earnings Estimates: EPS estimates for FY25, FY26, and FY27 have been cut by 18%, 14%, and 13%, respectively.
Impact on Microfinance Segment
The auction highlights continued stress in the MFI segment, with rising slippages and slowing loan growth. The bank expects Q3 slippages to increase and annual loan growth to decline by 12% due to the shrinking MFI book.
