India's IndusInd Bank shares climb as margins hold firm

BENGALURU, Oct 19 (Reuters) - Shares of Indias IndusInd Bank (INBK.NS) rose as much as 3% in heavy volumes in a weak market on Thursday, as the private lender managed to protect margins despite high funding costs, and reported strong loan growth.

Strong loan growth and tight liquidity have forced lenders to shore up their deposits by raising rates, leading to higher funding costs that, analysts have cautioned, could pressure margins.

However, brokerages including Jefferies said IndusInd Banks focus on growing in the riskier, but higher-yield, segments like microfinance and commercial vehicle loans, and its repricing of loans helped it maintain margins at stable levels.

The lender said on Wednesday its net interest margin (NIM) rose to 4.29% in the second quarter, from 4.24% a year earlier and was flat against the first quarter, despite its cost of funds climbing to 5.4% from 4.41% year-over-year.

It expects NIM to be between 4.2% and 4.3% this year.

While brokerage UBS has made IndusInd its top pick in the sector due to its ability to maintain stable margins, Jefferies has cautioned the focus on risky segments could lead to asset quality deterioration and said IndusInds increasing reliance on its non-funded and trading book were key risks.

Indeed, Indias central bank said earlier this month it was closely monitoring some fast-growing personal loan categories for signs of nascent stress as lenders expanded their unsecured lending portfolio with the pandemic-induced stress on household finances easing.

A handful of private sector lenders, including ICICI Bank (ICBK.NS) and Kotak Mahindra Bank (KTKM.NS), are scheduled to report results on Saturday.

IndusInds stock was last up about 2% in its most active trading session in a year, while the broader market was off 0.2%.

The companys stock has now risen nearly 19% this year, sharply outperforming the 4.4% rise in the Nifty private bank index (.NIFPVTBNK).