IndusInd Bank Q2 FY26 earnings call

The bank adopted a cautious stance on microfinance, leading to a 25% QoQ contraction in the loan book. This was accompanied by accelerated provisioning of ₹896 crores and a write-off of ₹1,579 crores of microfinance loans, resulting in a net loss of ₹437 crores for the quarter. Management indicated that these accelerated write-offs are a one-time^📎 event and not expected to recur in subsequent quarters. Steps like income assessment, additional ID checks, and CGFMU coverage (22% of standard book as of Sep-25) have been implemented to normalize gross slippages, which remained elevated with 31-90 Days Past Due at 3.2%.

Despite elevated microfinance slippages, overall asset quality showed sequential improvement, with GNPA reducing to 3.60% and NNPA to 1.04% QoQ. The Provision Coverage Ratio (PCR) also increased to 71.6% from 70.2% QoQ. Gross slippages for Vehicle Finance were ₹694 crores, Corporate ₹64 crores, Other Retail ₹697 crores, and Microfinance ₹1,083 crores. Management expressed confidence in stabilizing microfinance slippages in the next two quarters and aims to bring Net NPA down to 50-60 basis points in the medium term.

The bank continued to optimize its deposit mix by exiting non-LCR accretive wholesale deposits and Certificates of Deposits (CDs), leading to a 2% QoQ decline in total deposits to ₹3,89,600 crores. However, retail deposits as per LCR remained stable at ₹1,84,144 crores, with their share improving to 47.3% from 46.5% QoQ. The cost of deposit improved by 21bps QoQ to 6.23% due to savings account re-pricing. Digital platforms like INDIE and INDIE for Business showed healthy user growth, with INDIE app reaching 5 million clients and INDIE for Business 2.3 lakh MSME clients.

While vehicle finance and microfinance remain key pillars, the bank sees significant opportunities in traditional retail assets and the MSME sector. Other retail assets grew 13% YoY, with the home loan book crossing ₹5,500 crores, growing 84% YoY and 11% QoQ. The MSME book under business banking reached ₹18,195 crores, growing 1% QoQ. Management intends to scale up these subscale businesses for diversification, granularization, and to support the liability franchise, aiming for a more diversified and less cyclical portfolio.

IndusInd Bank made significant progress in rebuilding its leadership team, with several key appointments this quarter including a new CFO, Legal Counsel, Head of Internal Audit, and Head of Business Transformation. The bank expects to onboard a new Head of HR and Head of Digital in the next three months, along with other senior hires in the medium term. This initiative is aimed at enhancing strategic depth, execution capabilities, and shaping the future direction of the bank.

Net Interest Margin (NIM) marginally declined to 3.32% from 3.35% QoQ, supported by a 26bps reduction in cost of funds but offset by lower asset yields due to corporate loan repricing and adverse loan mix. Core fee income grew 1% QoQ to ₹1,543 crores. Management believes that as the microfinance business grows and the overall portfolio is recalibrated, margins should improve. The bank targets a fee-to-assets ratio in the vicinity of 1.5% over a period of time, driven by granular growth across retail and corporate segments.