IndusInd Bank’s Profit Plunges 39% to ₹1331 Cr Amid Rising Costs and Weaker Asset Quality

IndusInd Bank faces challenging outlook amid weaker asset quality

IndusInd Bank’s shares fell 18% to ₹1,047 on Friday after reporting a 39% year-on-year (YoY) drop in net profit for Q2 FY25, totaling ₹1,325 crore—falling short of the estimated ₹2,138 crore. This contrasts sharply with the ₹2,181.47 crore profit in the same period last year. While net interest income (NII) saw a modest 5% YoY rise to ₹5,347 crore, net interest margin (NIM) decreased by 21 basis points (bps) YoY to 4.08% and 18 bps quarter-on-quarter (QoQ).

Asset quality worsened, with gross non-performing assets (NPA) increasing to 2.11% and net NPA rising to 0.64%, compared to 1.93% and 0.57% YoY, respectively.

Jefferies has maintained a ‘Buy’ rating on IndusInd Bank but revised the target price from ₹1,750 to ₹1,470 due to weaker asset quality and contingent provisions impacting profitability. The bank’s topline is also under pressure from reduced lending, and Jefferies expects these challenges to persist in the second half of FY25, moderating only in FY26-27. This has led to a 13-25% reduction in projected earnings.

Nomura maintained a ‘Neutral’ rating, lowering its target price from ₹1,580 to ₹1,220, citing a challenging outlook and weaker quarter. It projects a Return on Equity (RoE) of 11-13% for FY25-27F, reduced from ~14%, with a 22-14% drop in Earnings per Share (EPS) due to slowed loan and deposit growth, as well as lower NIMs and fee income.

IndusInd Bank’s Profit Plunges 39% to ₹1331 Cr  Investec maintained a ‘Hold’ rating, reducing the target price from ₹1,560 to ₹1,410, observing that the bank is likely “kitchen-sinking” before the Reserve Bank of India’s CEO decision. It expects a few quarters before any fundamental improvements as the bank faces stress in the Microfinance Institution (MFI) sector and credit cards, affecting NIMs and fee income.

Nuvama downgraded IndusInd Bank from ‘Buy’ to ‘Hold’, cutting the target to ₹1,290 from ₹1,690, due to worsening asset quality, especially in the MFI sector, where the 30-day past due rate increased from 2% to 4% QoQ. NII and fees remain weak, with some risks to the bank’s guidance.

Lastly, IIFL downgraded IndusInd Bank from ‘Buy’ to ‘Add’, slashing its target from ₹1,590 to ₹1,300. The downgrade reflects a miss across key performance indicators, with a significant decline in NIM due to slower growth in high-yield segments and worsening asset quality. Elevated credit costs are anticipated in the near term, and IIFL has lowered its FY26-27 estimates by 9-14% due to slower growth and reduced fee income.

IndusInd Bank’s Profit Plunges 39% to ₹1331 Cr IndusInd Bank’s Q2 performance was widely regarded by analysts as an all-around disappointment, with loan growth slowing, sequential declines in net interest income (NII), higher slippages, and rising credit costs. Despite accounting for one-time provisions, the bank’s profit missed consensus expectations.

Nuvama Institutional Equities noted the bank’s return on assets (RoA) dropped to 1% from 1.7% in the previous quarter. Common Equity Tier 1 (CET1) capital also declined by 94 basis points (bps) quarter-over-quarter due to an increase in risk weight for microfinance (MFI) from 75% to 125%. With continued MFI stress expected into Q3 and fee income lagging for two consecutive quarters, Nuvama projects the stock will likely underperform, even after its recent price drop. Consequently, they lowered their FY25/26 earnings estimates by 20% and 15%, respectively, and reduced the target price from ₹1,690 (1.5x BV FY26E) to ₹1,290 (1.3x BV FY26E), downgrading the stock to a ‘Hold’ rating.

IndusInd Bank’s Profit Plunges 39% to ₹1331 Cr  Manish Chowdhury, Head of Research at Stoxbox, echoed this view, noting a 40% YoY drop in net profit, falling well below market expectations. He attributed the decline primarily to rising operating expenses and finance costs outpacing income growth. The bank’s net interest margin (NIM) also worsened, and asset quality weakened, with both gross and net NPAs increasing. While management sees these issues as temporary, they remain optimistic about growth in the microfinance and vehicle finance portfolios in the latter half of the fiscal year, which could support asset quality improvements.

Nirmal Bang also downgraded the stock from ‘Buy’ to ‘Hold,’ cutting the target price from ₹1,653 to ₹1,443, citing concerns over (1) slower loan growth, (2) stress in secured and unsecured loan segments, and (3) the pending RBI decision on extending CEO Sumanth Kathpalia’s term, which was renewed for two years instead of the expected three.

According to Motilal Oswal Financial Services (MOFSL), the bank reported healthy deposit growth, driven by term deposits, but NIMs fell sharply due to rising costs and slow growth in higher-yielding loans. Although IndusInd Bank initially projected loan growth of 18-22% for FY25, MOFSL now estimates it will be around 13%, given the bank’s cautious stance on unsecured lending. Despite some ongoing stress in the microfinance and credit card businesses, MOFSL expects overall slippages to remain manageable, helping to stabilize asset quality. MOFSL issued a ‘Buy’ rating with a target price of ₹1,500, while cutting earnings estimates by 16.7% for FY25 and 8.7% for FY26.

Analysts highlighted the importance of monitoring asset quality improvements, slippage control, and NIM recovery as key factors for the bank’s future outlook. Management will need to present a clear strategy to address these challenges and enhance performance going forward.

IndusInd Bank’s Profit Plunges 39% to ₹1331 Cr  A rise in provisions contributed to a 39.5% year-on-year (YoY) drop in IndusInd Bank’s net profit, which fell to ₹1,331.29 crore in Q2 FY25. Provisions for the quarter almost doubled to ₹1,820 crore, up from ₹974 crore in the same quarter last year.

Sumant Kathpalia, MD & CEO, noted that the bank allocated an additional ₹525 crore in contingent provisions as a prudent step to strengthen the balance sheet. He highlighted that IndusInd has adjusted its focus toward expanding retail deposits, sustaining growth in secured lending, reducing unsecured loan exposure, and bolstering its provision buffers. The bank’s net interest income (NII) increased 5% YoY to ₹5,347 crore, though the net interest margin (NIM) softened to 4.08%, down from 4.29% last year. This was partly due to a reduction in the microfinance loan portfolio, according to the bank.

IndusInd Bank’s Profit Plunges 39% to ₹1331 Cr  Kathpalia explained that NIM was impacted by 12 basis points due to slower microfinance disbursements and a decrease in loan volume. A lower credit-deposit ratio and reduced disbursements further lowered NIM by 4 basis points, with another 4 basis points from the bank’s focus on broadening its deposit base. In total, these factors led to a 16-17 basis point reduction in NIM. However, Kathpalia expressed optimism for recovery in NIM, particularly if the microfinance sector rebounds, potentially enhancing performance in the later quarters of FY25.

The bank exercised caution with microfinance lending in areas like Bihar, parts of Jharkhand, and Maharashtra, due to identified risks. For the quarter, asset yields stood at 9.69%, while funding costs rose to 5.61%, up from 5.40% in the previous year.

Deposits increased 15% YoY to ₹4.1 trillion, up from ₹3.5 trillion last year. Current Account Savings Account (CASA) deposits reached ₹1.4 trillion, with current accounts at ₹52,606 crore and savings accounts at ₹95,338 crore. CASA deposits represented 36% of the total deposit base, down from 39% a year prior. Advances rose by 13% YoY to ₹3.57 trillion, below the target growth range of 18-22% for FY23-26, but Kathpalia expects this to improve in FY25, driven by recovery in the vehicle and microfinance segments.

The gross non-performing assets (NPA) ratio was 2.11% of total advances, up from 2.02% in the previous quarter, with net NPAs at 0.64%, an increase from 0.60%. Other income for the quarter totaled ₹2,185 crore, slightly down from ₹2,282 crore in the previous year.