Financial data for IndusInd Bank Limited (NSE: INDUSINDBK)

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IndusInd Bank Limited (NSE: INDUSINDBK) is a large capitalization company operating in the financial services sector with a market capitalization of £ 986 billion. As major financial institutions recover after the global financial crisis, we are witnessing an increase in market confidence and our understanding of these banking stocks "too big to fail". A package of reforms called Basel III has been imposed to strengthen regulation, supervision and risk management in the banking sector. These reforms are aimed at regulating at the bank level and aim at improving the banking sector's ability to absorb shocks resulting from economic tensions that could expose financial institutions to vulnerabilities. Operating at INR, INDUSINDBK is subject to strict regulations that focus the attention of investors on the type and level of risk that it takes. Investors should be more cautious about financial values, given the different types of risk to which they are exposed. Today, we will analyze some bank-specific indicators and take a closer look at leverage and liquidity.

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NSEI: Historical debt of INDUSINDBK, March 15, 2019

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Why is the INDUSINDBK lever important?

Low-debt banks are better positioned to cope with headwinds because they have less debt to repay. A bank's leverage can be viewed as the level of assets it owns relative to the equity of its own shareholders. Although banks are required to have a certain level of safety margin to meet their capital requirements, IndusInd Bank's indebtedness level below the appropriate maximum level of 20x, at 9.3x, is considered as very careful. With assets representing 9.3 times equity, banks have maintained a conservative level of capital relative to borrowed funds, which places it in a strong position to repay its debt in the event of an adverse event. If the bank were to increase its level of debt to meet its capital needs, it would have plenty of leeway to do so.

How should we measure the liquidity of INDUSINDBK?

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Because loans are relatively illiquid, we should know how much of the bank's total assets are made up of these loans. As a general rule, they should not exceed 70% of total assets, which is the case for the ratio of IndusInd Bank to 65%. This means that just over half of the bank's total assets consist of illiquid loans, which creates a reasonable balance of interest and liquidity.

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What is the difference in liquidity of INDUSINDBK?

Banks take advantage of their clients' loans and lend interest on this principle. These loans tend to be fixed term, which means that they can not be easily realized, but customer deposits on the liabilities have to be paid on demand and in a very short time. This mismatch between illiquid loans and liquid deposits poses a risk to the bank if unusual events occur and requires it to repay its depositors immediately. Compared with the cautious level of industry loan deposits of 90%, the IndusInd Bank's ratio of over 96% is higher, placing the bank in a relatively dangerous territory with respect to the negative imbalance of liquidity. Essentially, for ¼ of deposits at the bank, it lends more than ¤ 0, which is risky.

Next steps:

The prudent management of risk levels by the bank is reflected in its reasonable debt and liquidity ratios. This means that he is well placed to meet his financial obligations in the event of adverse and unpredictable macroeconomic events. Today, we have only explored one aspect of IndusInd Bank. However, as a potential equity investment, you need to consider many other fundamental factors. I have identified three important factors that you should explore in greater depth:

  1. Future prospects: What do well-informed industry analysts predict for the future growth of INDUSINDBK? Check out our free analyst consensus report on INDUSINDBK's outlook.
  2. Evaluation: What is INDUSINDBK worth today? Has the potential for future growth already been factored into the price? The intrinsic value infographic of our free research report helps to visualize whether INDUSINDBK is currently misjudged by the market.
  3. Other performing stocks: Are there other stocks offering better prospects with proven track records? Explore our free list of these large stocks here.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Our goal is to provide you with a long-term research analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive business announcements or qualitative information.

If you notice an error that needs to be corrected, please contact the publisher at editorial-team@simplywallst.com. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.

"data-reactid =" 68 "> Our goal is to provide you with a long-term research analysis based on fundamental data.Please note that our analysis may not take into account the latest announcements of price sensitive companies or qualitative material.

If you notice an error that needs to be corrected, please contact the publisher at editorial-team@simplywallst.com. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.