After rising 1,500%, IndusInd bets on microfinance firm buy to extend gains

After rising IndusInd bets on microfinance firm buy to extend gains

IndusInd Bank Ltd, India’s best-performing lender for the past decade, is eyeing an acquisition of a microfinance firm to help it improve profitability while de-risking the country’s growing shadow banking crisis.

IndusInd’s purchase of Bharat Financial Inclusion Ltd will help it “move the needle” on profitability parameters, including return on assets and loan margins, CEO Romesh Sobti said. The acquisition of the country’s largest micro financier gives the bank a presence in more than 115,000 Indian villages, which will boost its efforts in cross-selling, lending, and low-cost deposit mobilization, Sobti said in an interview at his office.

Mumbai-based IndusInd, which has risen 1,500 percent since Sobti became CEO in 2008, lost some of its lusters after analysts including those at Credit Suisse AG and UBS Group AG flagged the lender’s exposure to India’s beleaguered shadow banks including Dewan Housing Finance Ltd. But higher capital buffers and lower bad loans helped the bank avoid the fate of rival Yes Bank Ltd, which lent to non-banks, and saw its market capitalization halve.

“IndusInd’s exposures are much lower than implied in these reports and are backed by adequate collateral,” Sobti said. “We do not expect any spike in bad loans and are currently focused on leveraging the gateway offered to rural India through Bharat Financial.”

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