Private-sector lender IndusInd Bank Ltd is going through a rough phase. In this calendar year so far, the stock is down 14%, massively lagging the Nifty Bank index, which is up about 16%. Its ranking in the index has also slipped—from the top five in the last quarter to eighth place in terms of weightage as of 31 October.
For those unaware, IndusInd’s journey started going downhill following its Q4FY25 results, when it reported a loss for the first time in 19 years. In the past, the bank chased faster growth by lending to segments such as microfinance loans, commercial vehicle financing and lower-rated corporate credit, which most banks approached cautiously. Together, these formed a meaningful chunk of IndusInd’s loan book: close to 25% in Q2FY26 compared to around 30% in Q2FY25.
Microfinance loans at ₹32,723 crore were almost 10% of its total loan book in Q2FY25, and in Q2FY26 that exposure reduced to ₹21,321 crore, forming just 7% of total loans. Similarly, the corporate loan portfolio, especially exposure to mid- and lower-rated companies, has fallen 21% year-on-year, reflecting growing caution after earlier slippages. This marred loan growth, with total advances falling 9% year-on-year in Q2FY26. In fact, IndusInd Bank was the only bank among the top five by market capitalization to report a decline in loans in Q2FY26.
On the asset-quality front, its gross non-performing asset (NPA) ratio slightly improved sequentially to 3.60% in Q2FY26, from 3.64%. But on a year-on-year basis, GNPA sharply rose from about 2.11% in Q2FY25 to 3.60%. So, while the risky loan portfolio has been shrinking, improvement in asset quality isn’t visible yet. Further, provisioning increased by 45% year-on-year and profitability suffered, leading to a ₹437 crore loss in Q2FY26.
Unfortunately, the concern is not limited to earnings performance. There are corporate-governance red flags as well. The loss that IndusInd reported in Q4FY25 wasn’t only because of stressed loans; it was also linked to accounting lapses, operational oversights, and irregularities in reporting practices. The bank disclosed that an internal review found a 2.35% hit to net worth as of December 2024, amounting to nearly ₹1,530 crore, stemming from derivative accounting discrepancies. An external agency later quantified the negative impact at ₹1,979 crore as of 30 June 2024.
Moreover, the bank wrongly recognised interest income of ₹684 crore in the microfinance segment. The problem is even if the loan book looks cleaner today, investors still don’t know whether future underwriting will truly improve – and the governance concerns only add to that doubt.
While IndusInd is taking corrective measures, but it may take time to yield a favourable outcome.
“The bank has undergone a large shift in management, as well as strategy, post the discovery of multiple issues, including alleged fraud. The bank has adequate capital, yet we think the liability, fee and asset franchise will take a long time to recover post the overhaul currently under way,” said a JP Morgan Global Markets Strategy report on 14 November.
This suggests low PPoP return on asset for the bank for an extended period, which in turn could limit its ability to grow without consistent capital injections for an extended period, it cautioned. In short, these factors could keep return ratios muted.
Meanwhile, according to JP Morgan’s estimate the stock currently trades at 0.9x FY27 book value, maybe cheaper than peers, but a lower reading in this case reflects uncertainty to a large extent.
