How Is IndusInd Bank Navigating Stress While Resetting Its Growth Engine?
IndusInd Bank’s Q3 concall needs to be read with nuance rather than emotion. Headline numbers appear weak, especially at the PAT level, but the underlying narrative is not one of structural deterioration. Instead, it reflects a deliberate phase of balance-sheet cleanup, portfolio rebalancing, and capital protection at a time when pockets of stress, particularly in microfinance, have surfaced across the system.
The bank is simultaneously tightening risk, exiting low-yield wholesale exposures, recalibrating unsecured consumer growth, and investing in segments that offer better risk-adjusted returns. This transition phase naturally suppresses near-term profitability but lays the groundwork for a more resilient earnings profile.
Vehicle Finance Remains the Core Growth Anchor
Vehicle finance continues to be the standout performer for IndusInd Bank. Disbursements surged 26% QoQ to ₹12,900 crore, reflecting strong on-ground demand and stable underwriting.
This segment benefits from secured collateral, granular borrower profiles, and relatively faster asset churn, making it a reliable earnings contributor even during broader credit cycles.
Management commentary suggests that vehicle finance is not only delivering volume growth but also maintaining credit discipline. In an environment where unsecured portfolios face volatility, this secured lending engine provides stability and predictability to the loan book.
Consumer Banking: Selective Growth Over Aggression
Home loans expanded sharply, growing 94% YoY, indicating renewed traction in secured retail lending.
Credit cards, however, declined 6% YoY as the bank consciously chose to de-grow higher-risk accounts to protect asset quality.
This divergence highlights management’s risk-first approach. Rather than chasing topline growth in unsecured products, IndusInd Bank is prioritizing sustainability. Such decisions often look conservative during bull cycles but tend to preserve capital and franchise value over longer horizons.
Wholesale Banking: Pruning for Profitability
The wholesale loan book declined 4% as the bank exited low-yield and sub-optimal exposures.
This move supports margin protection and reduces volatility from large-ticket corporate accounts.
While wholesale banking contractions can temporarily dampen growth optics, they often improve the quality of earnings. For IndusInd Bank, this pruning exercise aligns with its broader objective of building a more retail- and MSME-led balance sheet.
MSME: The Next Growth Vector Under Construction
MSME has been identified as a key focus area, with teams being strengthened to drive calibrated growth.
This segment offers higher yields than wholesale lending while retaining better collateral coverage than unsecured retail products.
Over time, MSME expansion can play a critical role in improving margins and diversifying risk. However, management appears cautious, preferring measured execution over rapid balance-sheet expansion.
Deposit Mix and Liquidity: Stability Over Size
Average deposits declined 1% due to bulk deposit runoff.
Retail deposits improved to 47.5% of total deposits, enhancing funding stability.
The shift toward retail deposits supports margin resilience and reduces dependence on volatile bulk funding. Liquidity remains comfortable, with LCR at 122%, offering ample cushion against market stress.
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Profitability Impacted by Microfinance Stress
PPOP stood at ₹2,270 crore, up 11% QoQ, supported by better net revenues and cost control.
PAT dropped to ₹128 crore due to elevated microfinance provisions and NPA write-offs.
The sharp divergence between operating profitability and net profit highlights that earnings pressure is largely provisioning-driven rather than operational. This distinction is crucial for long-term investors assessing normalized earnings power.
Margins and Capital Remain Supportive
Reported NIM stood at 3.52%, including one-offs; normalized NIM at 3.35% remains healthy.
CET1 ratio at 15.74% and CRAR at 16.94% indicate strong capital buffers.
Capital adequacy provides flexibility to absorb stress while continuing selective growth. Deposit repricing is supporting margins even as the bank navigates asset quality normalization.
Microfinance Stress: Signs of Stabilization Emerging
GNPA stood at 3.56%, while NNPA was contained at 1.04%.
31–90 DPD in microfinance improved to 2.4% from 3.2% in Q2, indicating early stabilization.
The bank has adopted a conservative provisioning stance, writing off MFI loans at 365 days and maintaining PCR around 72%. Management aims to gradually reduce NNPA to 0.6–0.7% over time, signaling confidence in recovery.
Valuation and Investment Perspective
IndusInd Bank is in a reset phase rather than a decline phase. Near-term earnings volatility reflects prudence, not weakness.
As microfinance stress normalizes and MSME and vehicle finance scale up, return ratios are likely to improve from current levels.
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Investor Takeaway
Derivative Pro & Nifty Expert Gulshan Khera, CFP®, believes that IndusInd Bank’s current phase reflects disciplined risk management rather than structural stress. Banks that prioritize capital protection, granular growth, and early recognition of asset quality challenges often emerge stronger in the next cycle. Investors should track normalization trends in microfinance and execution in vehicle finance and MSME to assess medium-term re-rating potential. More informed market insights are available at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
