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Profit Recovery Amid Growth Concerns
IndusInd Bank's return to profit shows improved operations, mainly due to lower provisions and stronger net interest income. However, the bank's deliberate move to cut riskier loans, while improving asset quality, is directly slowing core business expansion.
Asset Quality Improves, but Loan Growth Lags
IndusInd Bank announced a return to profitability in Q4 FY26, posting a net profit of ₹594 crore, a stark contrast to the ₹2,329 crore net loss recorded in the same quarter of the previous fiscal year. This turnaround was significantly supported by a 43% year-on-year surge in Net Interest Income (NII) to ₹4,371 crore. Asset quality also improved, with Gross Non-Performing Assets (GNPA) falling to 3.43% from 3.56% quarter-on-quarter, and Net NPAs down to 1% from 1.04%. Overall slippage reduced by 29% quarter-on-quarter, with a notable ~50% decrease in the Microfinance Institution (MFI) segment slippage, leading to provisions of 1.80%.
Despite these positive developments, loan growth remains sluggish, and fee income has not met expectations. This slower expansion is closely tied to IndusInd Bank's ongoing strategy to reduce risk exposure in its balance sheet, particularly in large corporate and MFI portfolios year-on-year. This strategic shift aims for greater stability but directly affects topline growth.
Valuation and Peer Comparison
IndusInd Bank has a market capitalization of around ₹66,000-₹67,000 crore. Its Price-to-Earnings (P/E) ratio varies across reports, from 17.2 to much higher figures like 74.33, or even negative due to past losses. The Price-to-Book Value (P/BV) ratio is approximately 1.02x.
In comparison, peers like HDFC Bank trade at a P/E of about 16.10, ICICI Bank at 17.91, and Axis Bank at 12.94. HDFC Bank and ICICI Bank have significantly larger market capitalizations. While IndusInd Bank's P/BV is lower, these competitors typically show better Return on Equity (ROE) and Return on Assets (ROA), suggesting stronger market confidence.
Sector Slowdown and Funding Pressures
The Indian banking sector expects slower credit growth in FY27, estimated between 11.0% and 11.7%, down from 15.9% in FY26. Deposit growth is also trailing credit expansion, straining credit-deposit ratios and potentially reducing Net Interest Margins (NIMs). Geopolitical uncertainties, like the West Asia conflict impacting oil prices, add macroeconomic risks that could curb credit demand.
Valuation Concerns and Growth Limitations
Previous operational and governance issues have been addressed, including accounting irregularities and lapses that led to leadership changes and financial restatements. The bank's strategy of reducing risk limits its potential for core loan and fee income growth. This cautious approach could be a disadvantage when investors prioritize growth. Furthermore, IndusInd Bank's Price-to-Book Value of 1.02x appears expensive given its negative ROE of -2.84%, especially compared to peers with positive double-digit ROEs that trade at higher valuations. The ongoing lag in deposit growth compared to credit expansion also presents a funding challenge that could pressure margins.
Analyst Views and Bank's Goals
Analysts hold mixed views. Prabhudas Lilladher maintains an 'Accumulate' rating with a target price of INR 960, based on a 1.0x multiple on FY28 Average Book Value. However, other major brokerages largely maintain 'Hold' or 'Neutral' ratings, showing the mixed performance signals. Price targets typically range from ₹889 to ₹950. Elara Capital recently upgraded the stock to 'Accumulate' with a target of ₹940, noting signs of loan growth stabilization. The bank aims for system-level credit growth and a Return on Assets (RoA) of 1% by Q4FY27, provided credit costs moderate and earnings improve.