INDUSINDBK Q1 FY27 earnings call.
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IndusInd Bank reported a strong Q1 FY27, marking an inflection point after a year of balance sheet recalibration. PAT surged to Rs 1,037 crore from Rs 594 crore in Q4, with normalized ROA improving to 0.63% from 0.45%. The sequential jump reflects lower provisions (down 7% QoQ to Rs 1,384 crore) and disciplined cost management (opex down 2% QoQ). Asset quality improved meaningfully—GNPA declined to 3.25% from ~3.5%+ previously, with annualized net slippage at 1.5% versus 2.43% YoY. Microfinance stress is normalizing with gross slippage moderating sharply to Rs 191 crore from Rs 884 crore YoY. Deposit franchise strengthened with retail deposits now at 49.5% of LCR (highest ever). Wholesale book resumed growth at 7% QoQ with 82% A-rated and above. The bank targets 1% ROA by Q4 FY27, expecting continued improvement from lower credit costs and operating leverage. Key risks include NIM pressure from mix shift toward wholesale and any slowdown in microfinance recovery trajectory.
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Guidance to track
- Bank expects to reach 1% ROA through 60% contribution from PPOP improvement and 40% from lower credit costs. This will be driven by balance sheet growth, operating leverage, and continued asset quality improvement.
- Corporate/wholesale growth is not expected to sustain 7%+ QoQ indefinitely; bank will selectively pick transactions with reciprocal business (transaction banking, current accounts) while optimizing risk-return profile.
- Q1 was seasonally weak with flat disbursements at Rs 5,200 crore; expect meaningful acceleration from Q2 onwards as business pivots from repair to growth phase.
- NIM declined 4bps to 3.35% this quarter due to mix shift toward wholesale; expects NIM to come back as high-yielding retail/businesses start growing, though NIM is a smaller contributor to the 1% ROA journey.
Risks flagged
- Wholesale banking share increased from 34% to 36% of loan book, compressing yields. Management acknowledged ~20bps decline in asset yields versus ~12bps improvement in cost of deposits. If retail/retail-lending growth lags, NIM could face sustained pressure.
- Analyst raised concern about declining SA balances over past 5-6 quarters. Management acknowledged letting go of 'lumpy' and higher-cost dollar balances from Gulf operations, with intent to replace with granular deposits. Success of this transition remains to be demonstrated.
- Management maintained 1-1.5% loan book as one-time ECL impact but acknowledged it will need 'true up' by March. Capital impact may be partially offset by Basel guideline changes, but absolute net worth could be impacted. No immediate capital raise planned but 'continually assessed'.
- Vehicle finance excluding two-wheelers grew 3% YoY, but overall disbursements fell 4% YoY due to ongoing calibration of two-wheeler distribution and underwriting. Management flagged this as structural recalibration rather than cyclical weakness, but recovery timeline uncertain.
Key quotes
- We delivered a return to balance sheet growth, further strengthened our liability franchise, continued to improve asset quality and achieved a meaningful recovery in profitability.
- What is also very important to us is reciprocity meaning that we will do transactions where the probability of getting reciprocal transactions meaning transaction banking, current account floats, payment of GST, salary accounts etc. is higher than the others.
- We are actually moving away from the more traditional Indus bank model of high cost of deposits and a riskier portfolio to a more balanced portfolio which is more predictable from a profitability and ROA perspective.
- We've guided for the fact that we will slow down on our personal loans and credit cards where we are correcting the portfolio quality. We are now seeing the tail end of that risk that is flowing in.
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