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Thursday, September 10, 2009

Indian Bank:One of the better banking stock for your portofolio

Scripscan:Indian Bank

Story:Headquarted in Chennai, Indian Bank is a leading bank in South India with widespread presence in Tamil Nadu, Kerala, Andhra Pradesh and Pondicherry. It was nationalised in 1969. It is a medium-sized bank and its balance sheet size stood at Rs 84,122 crore in FY 2009. It has 1,642 branches.In the current decade, the bank has seen a turn-around. At the end of March 2000, bad loans, or net non-performing assets, formed 16% of Indian bank''s net advances. In FY06 it absorbed all the losses in its capital, which fell to Rs 744 crore from Rs 4,574 crore in the previous year. Since then, Indian Bank''s profit has grown at compounded annual growth rate (CAGR) of 35% every year, while its balance sheet has grown at a CAGR of 21%. This shows that it has enough reach and scale to leverage.Indian Bank''s performance is clearly a cut above most state-run banks, notorious for inconsistent performance that puts down investors. The bank has performed well on all quality parameters while maintaining an impressive growth rate, achieving a delicate balance that has eluded several of its peers.For instance, its net interest margin (NIM) stood at more than 3.5% in last six financial years. The only banks, which can better Indian Bank on this count are Kotak Mahindra Bank, Federal Bank and HDFC Bank. Its return on assets (RoA), at 1.6% in FY 2009, was the highest across all banks.Its bad loans formed less than 0.2% of its net advances at the end of the year. Only Punjab National Bank has better record than Indian Bank on this count. The composition of its lending portfolio is very much on the lines of other state-run banks: agriculture loans constituted 15%, SME loan formed 11% and corporate sector contributed 50% to total loan book.That the bank''s performance is superior despite similar lending profile shows the efforts being put in to choose the customers. The bank is expanding its presence. It opened 101 new branches in FY 2009.Indian Bank is one of the oldest banks in the country. It is also one of the best-managed state-run banks in India. Its performance in the last three years, since it absorbed all its accumulated losses in its capital, is at par with best in its industry. Investors are advised to consider it for long-term investment.

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