Indusind’s third-quarter fiscal 2016 earnings were up 30%, broadly in line with our 32% growth estimate for the full year. Net interest income was up 36%, aided by strong growth in loans, which grew 29% and expanding net interest margins. NIMs moved to 3.9%, even closer to our 4.0% annual target, despite an environment of falling interest rates. This was made possible because the bank saw strong deposit growth (of 25%) and relied less on borrowing. The composition of deposits also tilted more towards the cheaper current account and savings accounts, or CASA, deposits, which grew 28% and form 35% of total deposits, versus 34% last year. Versus the year-ago period, the cost of funds for the bank fell by 83 basis points, while the yield on assets fell by only 59 basis points. As surmised in our prior forecast, we expected that the fixed-rate vehicle loan book will allow Indusind to maintain yield on its assets, while its growing CASA deposit base will lower funding costs, thereby expanding margins in the coming years. We see our hypothesis play out in the current quarter as well. Noninterest income was up by 29%, as fee-based income continued to grow ahead of loan growth. With earnings broadly as expected, we maintain our INR 930 per share, or USD 14 per ADR, fair value estimate for this narrow-moat stock. The stock remains fairly valued at current trading levels.
From an asset-quality perspective, the firm remains a sound underwriter, with gross nonperforming loans at a mere 0.82%, versus nearly 6.0% for the Indian banking system as a whole, as per the March 2015 Reserve Bank India data. We are pleased to see that, despite the acquisition of the RBS jewellery portfolio, the bank’s credit cost and provision metrics have not ballooned, unlike most acquisitions and asset-quality recognition exercises. We remain optimistic about Indusind Bank's future prospects.
The bank has expanded its branch network by 25% over the past year, to 905 branches as of December. The cost/income ratio for the bank remains at a manageable 47%, as revenue grows in tandem with operating costs. Indusind maintains that its digital banking will coexist with physical banking, and that the two must go hand-in-hand for the bank to serve both its corporate and its retail clients (42% of total loans are retail after the RBS acquisition). It has already entered partnerships and launched innovative solutions to better serve its customers with the use of technology.
