IndusInd Bank reported a second-quarter Return on Assets of 0.87 percent, with Net Interest Margins settling at 3.23 percent. The bank's strategy to move away from expensive wholesale funding towards Foreign Currency Non-Resident deposits has created short-term margin pressure. Asset quality has shown improvement, with lower slippages, as the bank pivots toward more secured lending. Investors may watch for the bank's progress on its 1 percent Return on Assets target for the fourth quarter.
IndusInd Bank’s financial results for the second quarter of the 2027 fiscal year highlight a bank in the middle of a strategic shift. The lender reported a Return on Assets (RoA)—a measure of how efficiently it generates profit from its assets—of 0.87 percent. While the bank is making progress in cleaning up its loan book, its profit margins face short-term challenges due to changes in its deposit mix.
The bank’s Net Interest Margin (NIM), which indicates the difference between interest earned on loans and interest paid on deposits, settled at 3.23 percent. This pressure is largely linked to the bank's active re-engineering of its funding structure. By attracting Rs 33,627 crore in Foreign Currency Non-Resident (FCNR) deposits, the bank has successfully lowered its reliance on volatile wholesale funding. Exposure to Certificates of Deposit (CDs) dropped significantly to 3.3 percent, down from 5.9 percent previously. While this creates a more stable foundation for the balance sheet, the cost of these foreign inflows has impacted interest margins for the quarter.
On the positive side, the bank’s asset quality appears to be on a steadier path. Gross slippage, which counts fresh bad loans, fell to 1.8 percent, while net slippage dropped to 1.1 percent. This trend, combined with a reduction in credit costs—the amount set aside for potential losses—to 1.4 percent, suggests that the underlying loan book is healthier. Additionally, non-interest income rose by 26 percent sequentially, driven by treasury gains and fee-based revenue, which helped balance some of the margin compression.
The bank is currently prioritizing lower-yielding, secured assets like mortgages and business banking, while maintaining a cautious stance on high-yield, unsecured credit lines such as personal loans and credit cards. This defensive strategy mirrors wider trends in the Indian banking sector, where lenders are being more selective regarding unsecured retail credit following increased regulatory focus. Balancing this shift toward safer assets with the need for profit growth remains a key operational task.
Looking ahead, the management has set a target to reach a 1 percent RoA by the fourth quarter of the fiscal year. Whether the bank can reach this goal will depend on its ability to improve its domestic retail deposit base, manage operating expenses, and maintain asset quality as it grows its loan book. Investors will likely track the bank’s ability to stabilize its margins while continuing to pivot toward lower-risk lending segments.