The bank's net profit jumped from ₹2,023.87 crores in Q1 FY26, representing a 60.13% increase, whilst year-on-year growth stood at 75.32% compared to ₹1,848.73 crores in Q2 FY25. Interest earned rose 1.17% sequentially to ₹7,109.01 crores, though other income surged 46.35% quarter-on-quarter to ₹2,154.52 crores, raising questions about earnings sustainability.
The stock has underperformed in recent months, declining 7.94% over the past three months compared to a 2.06% gain in the Sensex, resulting in negative alpha of 10.00%. Despite the strong quarterly results, shares remain 13.69% below their 52-week high of ₹106.34, though they trade 39.29% above the 52-week low of ₹65.89. The bank's current mildly bullish technical trend, established on 9th October 2025, faces resistance at the 20-day moving average of ₹92.10.
| Metric (₹ Crores) | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|
| Interest Earned | 7,109.01 | 7,026.62 | 6,982.97 | 7,819.25 | 7,445.01 | 6,669.84 |
| QoQ Change | +1.17% | +0.63% | -10.70% | +5.02% | +11.62% | -4.64% |
| Net Profit | 3,240.77 | 2,023.87 | 2,072.01 | 1,929.09 | 1,848.73 | 1,739.15 |
| QoQ Change | +60.13% | -2.32% | +7.41% | +4.35% | +6.30% | +5.08% |
| Net Interest Income | 3,292.66 | 3,175.32 | 3,299.78 | 4,236.23 | 3,882.95 | 3,241.56 |
| QoQ Change | +3.70% | -3.77% | -22.11% | +9.10% | +19.78% | -12.30% |
Financial Performance: Profit Surge Driven by Non-Core Income
IDBI Bank's Q2 FY26 financial performance presents a paradox of exceptional profitability underpinned by concerning structural shifts. The bank's net profit of ₹3,240.77 crores represents its highest quarterly earnings on record, surging 60.13% from the previous quarter and 75.32% year-on-year. However, this stellar growth was primarily driven by a 46.35% quarter-on-quarter jump in other income to ₹2,154.52 crores, which now constitutes 59.62% of profit before tax—a red flag that signals heavy reliance on non-operating income sources.
Interest earned grew modestly by 1.17% quarter-on-quarter to ₹7,109.01 crores, reflecting subdued core banking activity. Net interest income increased 3.70% sequentially to ₹3,292.66 crores, whilst interest expended declined 0.91% to ₹3,816.35 crores, suggesting improved liability management. The bank's operating profit before provisions stood at ₹3,146.95 crores in Q2 FY26, up 32.35% from the previous quarter, demonstrating operational efficiency gains.
On an annual basis, the bank reported total income of ₹34,126 crores for FY25, representing 9.3% growth from ₹30,421 crores in FY24. Net profit for the full year reached ₹7,656 crores, up 31.68% from ₹5,814 crores in the previous fiscal year. The tax rate for FY25 stood at 28.7%, down from 30.9% in FY24, contributing to improved bottom-line performance.
Operational Excellence: Strong Capital Position Offset by Quality Concerns
IDBI Bank's operational metrics reveal a lender with robust capital adequacy but facing challenges in maintaining consistent asset quality. The bank's capital adequacy ratio (CAR) stood at 25.53% as of Q2 FY26, significantly above regulatory requirements and unchanged from the previous quarter. The Tier 1 CAR improved marginally to 23.94% from 23.87%, reflecting strong core capital buffers that position the bank well for future growth.
The bank's return on equity (ROE) of 12.51% in Q2 FY26 demonstrates solid capital efficiency, indicating effective utilisation of shareholder funds to generate profits. This metric, whilst respectable, trails industry leaders and suggests room for improvement in profitability relative to equity deployed. Return on assets (ROA) stood at 1.85%, reflecting reasonable asset productivity in the competitive banking landscape.
The balance sheet expanded steadily, with shareholder funds reaching ₹61,620.05 crores as of March 2025, up from ₹51,073.06 crores in the previous year. Deposits grew to ₹309,975.04 crores, representing an 11.76% year-on-year increase, whilst advances rose to ₹218,399.16 crores, marking 15.82% annual growth. The credit-to-deposit ratio improved, indicating better deployment of mobilised funds.
Critical Concern: Non-Operating Income Dependency
The bank's reliance on other income, which constituted 59.62% of profit before tax in Q2 FY26, raises sustainability concerns. This heavy dependency on non-core revenue sources—rather than traditional interest income from lending activities—suggests that the impressive profit growth may not be sustainable over the long term. Investors should monitor whether this represents a one-time gain or a structural shift in the bank's business model.
Asset Quality Analysis: Limited Transparency on NPA Metrics
IDBI Bank's asset quality assessment is hampered by limited disclosure of key non-performing asset (NPA) metrics in the quarterly results. Whilst the bank maintained a provision coverage ratio that supports its balance sheet strength, the absence of detailed gross and net NPA percentages in recent quarterly disclosures prevents comprehensive evaluation of asset quality trends.
Historical data indicates the bank has made significant progress in cleaning up its balance sheet. Annual provisions and contingencies declined to ₹512 crores in FY25 from ₹1,406 crores in FY24, suggesting reduced stress in the loan book. This improvement enabled the bank to return to sustained profitability after years of losses, with FY25 marking the fifth consecutive year of positive earnings.
The bank's advances portfolio grew 15.82% year-on-year to ₹218,399.16 crores as of March 2025, indicating renewed lending appetite. However, the quality of this growth remains unclear without transparent NPA disclosures. The financial trend analysis flags that net NPA reached its highest level in recent quarters at 0.21%, though this remains manageable by industry standards.
| Company | P/E Ratio | P/BV Ratio | ROA (%) | Div Yield (%) | CAR (%) |
|---|---|---|---|---|---|
| IDBI Bank | 12.65x | 1.59x | 1.94% | 2.27% | 23.71% |
| Axis Bank | 14.23x | 1.95x | 1.45% | 0.08% | 14.43% |
| Yes Bank | 18.76x | 1.49x | 0.66% | 0.00% | 14.00% |
| Kotak Mah. Bank | 18.92x | 3.74x | 1.94% | 0.11% | 21.80% |
| IDFC First Bank | 32.45x | 1.52x | 0.36% | 0.25% | 12.80% |
Industry Leadership: Competitive Positioning Analysis
IDBI Bank's competitive positioning within the public banking sector reveals a lender trading at attractive valuations whilst maintaining superior capital adequacy. With a price-to-book value ratio of 1.59x, the bank trades at a discount to Kotak Mahindra Bank's 3.74x and broadly in line with peers like Yes Bank (1.49x) and IDFC First Bank (1.52x). The P/E ratio of 12.65x represents reasonable value compared to IDFC First Bank's 32.45x, though it trails Axis Bank's 14.23x.
The bank's dividend yield of 2.27% stands out significantly, offering substantially higher income returns than Axis Bank (0.08%), Kotak Mahindra Bank (0.11%), or IDFC First Bank (0.25%). This attractive yield, supported by improved profitability, positions IDBI Bank favourably for income-focused investors seeking exposure to the banking sector.
IDBI Bank's capital adequacy ratio of 23.71% substantially exceeds peers, providing a comfortable buffer above Axis Bank (14.43%), Yes Bank (14.00%), IDFC First Bank (12.80%), and even Kotak Mahindra Bank (21.80%). This superior capitalisation positions the bank well for balance sheet expansion without immediate capital-raising requirements. However, the bank's return on assets of 1.94%, whilst matching Kotak Mahindra Bank, exceeds Axis Bank (1.45%), Yes Bank (0.66%), and IDFC First Bank (0.36%), demonstrating reasonable asset productivity.
Valuation Analysis: Attractive Entry Point Despite Recent Weakness
IDBI Bank's valuation metrics suggest an attractive entry opportunity for long-term investors, despite recent price weakness. Trading at ₹91.78 with a price-to-book value of 1.58x and P/E ratio of 12.65x, the stock appears reasonably valued relative to its improved fundamentals and peer group. The proprietary valuation grade classifies the stock as "Attractive," with the threshold for "Very Attractive" territory set at ₹64, suggesting limited downside risk from current levels.
The bank's price-to-book multiple of 1.58x represents a discount to its book value per share of ₹47.53, implying the market values the bank's assets at a modest premium. This compares favourably to historical valuations and suggests the recent profit improvements have not been fully reflected in the share price. The PEG ratio of 0.46x indicates the stock may be undervalued relative to its growth prospects, though this metric should be interpreted cautiously given the volatility in quarterly earnings.
The stock's 52-week trading range of ₹65.89 to ₹106.34 provides context for current valuations. Trading 13.69% below the 52-week high suggests recent weakness has created a more attractive entry point, whilst the 39.29% premium to the 52-week low indicates the market still values the bank's turnaround story. The dividend yield of 2.29% adds to the investment case, providing income whilst capital appreciation potential materialises.
Shareholding Pattern: Stable Promoter Base with Marginal Institutional Interest
IDBI Bank's shareholding structure reflects a stable promoter base dominated by government entities, with minimal institutional participation that could limit near-term price discovery. Promoter holding has remained unchanged at 94.71% for the past five quarters, with Life Insurance Corporation of India holding 49.24% and the President of India (representing the government) holding 45.48%. This substantial government ownership provides strategic stability but limits free float availability.
| Category | Jun'25 | Mar'25 | Dec'24 | Sep'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 94.71% | 94.71% | 94.71% | 94.71% | 0.00% |
| FII | 0.54% | 0.46% | 0.42% | 0.46% | +0.08% |
| Mutual Funds | 0.06% | 0.04% | 0.03% | 0.02% | +0.02% |
| Insurance | 0.08% | 0.13% | 0.14% | 0.14% | -0.05% |
| Other DII | 0.02% | 0.02% | 0.02% | 0.02% | 0.00% |
| Non-Institutional | 4.59% | 4.64% | 4.68% | 4.64% | -0.05% |
Foreign institutional investor (FII) holdings increased marginally to 0.54% in Q1 FY26 from 0.46% in Q4 FY25, with the number of FII holders rising to 72 from 70. Mutual fund holdings also edged up to 0.06% from 0.04%, though the absolute levels remain negligible. Insurance company holdings declined to 0.08% from 0.13%, with the number of insurance holders decreasing from six to five, suggesting reduced institutional confidence.
The limited institutional participation, with total institutional holdings at just 0.63%, indicates the stock remains largely off the radar for mainstream fund managers. Non-institutional holdings declined marginally to 4.59% from 4.64%, with the number of non-institutional holders falling to 692,400 from 721,301. The absence of promoter pledging provides comfort regarding financial stability at the shareholder level.
Stock Performance: Three-Year Outperformance Gives Way to Recent Weakness
IDBI Bank's stock performance reveals a tale of two periods: exceptional long-term returns contrasted with recent underperformance that has created a more attractive entry point. Over a three-year horizon, the stock has delivered stellar returns of 114.19% compared to the Sensex's 43.73%, generating positive alpha of 70.46 percentage points. This outperformance reflects the market's recognition of the bank's successful turnaround from years of losses to sustained profitability.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -1.79% | +1.76% | -3.55% |
| 1 Month | -1.25% | +1.52% | -2.77% |
| 3 Months | -7.94% | +2.06% | -10.00% |
| 6 Months | +11.79% | +6.87% | +4.92% |
| YTD | +19.97% | +7.44% | +12.53% |
| 1 Year | +13.10% | +3.64% | +9.46% |
| 2 Years | +30.89% | +26.38% | +4.51% |
| 3 Years | +114.19% | +43.73% | +70.46% |
However, recent performance has deteriorated significantly. The stock declined 7.94% over the past three months whilst the Sensex gained 2.06%, resulting in negative alpha of 10.00 percentage points. One-month returns show a 1.25% decline against the Sensex's 1.52% gain, and the one-week performance reveals a 1.79% drop compared to the market's 1.76% advance. This recent weakness has pushed the stock into the fourth quartile (underperformer category) for the latest quarter.
Year-to-date, the stock has gained 19.97% compared to the Sensex's 7.44% advance, generating positive alpha of 12.53 percentage points and placing it in the second quartile (above-average performer). The one-year return of 13.10% exceeds the Sensex's 3.64% gain and outperforms the public banks sector return of 8.66% by 4.44 percentage points, demonstrating sector leadership despite recent setbacks.
The stock's beta of 1.20 indicates higher volatility than the broader market, with a 40.70% volatility measure classifying it as a high-risk investment. The risk-adjusted return of 0.32 over one year compares favourably to the Sensex's 0.29, suggesting the additional risk has been compensated with superior returns. The stock currently trades below its 20-day moving average of ₹92.10 but above its 200-day moving average of ₹86.26, indicating mixed technical signals.
"IDBI Bank's transformation from chronic underperformer to profit powerhouse remains impressive, but the sustainability of earnings driven predominantly by non-core income warrants careful monitoring."
Investment Thesis: Attractive Valuation Offset by Earnings Quality Concerns
IDBI Bank presents a nuanced investment case where attractive valuations and strong capital adequacy are counterbalanced by questions about earnings sustainability and limited institutional participation. The bank's proprietary Mojo score of 64 out of 100 places it firmly in "HOLD" territory, reflecting this balance between positives and concerns. The valuation grade remains "Attractive," suggesting the stock offers reasonable value at current levels despite recent underperformance.
The financial trend classification of "Positive" for the latest quarter acknowledges the strong headline numbers, though this assessment may not fully capture the concerns around non-operating income dependency. The quality grade of "Average," maintained for 18 consecutive quarters since March 2021, reflects steady but unspectacular operational performance. The technical trend classification of "Mildly Bullish" provides modest support, though the stock remains below key resistance levels.
Key Strengths & Risk Factors
KEY STRENGTHS
- Exceptional Profit Growth: Net profit surged 75.32% YoY to ₹3,240.77 crores in Q2 FY26, marking the highest quarterly earnings on record
- Superior Capital Adequacy: CAR of 25.53% significantly exceeds regulatory requirements and peer averages, providing substantial growth cushion
- Attractive Valuation: P/E of 12.65x and P/BV of 1.58x represent reasonable value relative to improved fundamentals
- Sector-Leading Dividend Yield: 2.29% yield substantially exceeds private sector peers, providing income whilst awaiting capital appreciation
- Strong ROE: 12.51% return on equity demonstrates solid capital efficiency and effective deployment of shareholder funds
- Stable Government Backing: 94.71% promoter holding by LIC and Government of India provides strategic stability and implicit support
- Impressive Long-Term Returns: 114.19% three-year return with 70.46 percentage points of alpha demonstrates successful turnaround execution
KEY CONCERNS
- Non-Operating Income Dependency: Other income constitutes 59.62% of PBT, raising serious sustainability concerns about earnings quality
- Limited Core Income Growth: Interest earned grew just 1.17% QoQ, indicating subdued lending activity and weak core banking momentum
- Recent Price Weakness: Stock declined 7.94% over three months with negative alpha of 10.00%, underperforming market and peers
- Minimal Institutional Participation: Total institutional holdings of just 0.63% limit price discovery and liquidity
- Limited Free Float: 94.71% promoter holding restricts available shares for trading, potentially constraining valuation expansion
- High Volatility: Beta of 1.20 and 40.70% volatility classify the stock as high-risk, unsuitable for conservative investors
- Unclear Asset Quality: Limited NPA disclosure in recent quarters prevents comprehensive assessment of loan book health
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained improvement in core interest income growth above 5% QoQ
- Reduction in other income dependency to below 40% of PBT
- Increased institutional participation, particularly from mutual funds and FIIs
- Government disinvestment plans that could improve free float and liquidity
- Continued asset quality improvement with declining NPA ratios
RED FLAGS
- Further increase in non-operating income dependency above 60% of PBT
- Stagnant or declining core interest income for consecutive quarters
- Rising NPA levels or deterioration in provision coverage ratio
- Continued institutional selling or reduction in insurance company holdings
- Technical breakdown below 200-day moving average of ₹86.26
The Verdict: Hold with Caution
Score: 64/100
For Fresh Investors: Not recommended for fresh purchases at current levels. Whilst valuations appear attractive and the dividend yield is compelling, the sustainability of earnings driven predominantly by non-operating income raises significant red flags. Wait for evidence of sustained core income growth and improved earnings quality before initiating positions. Those seeking exposure to public sector banks may find better risk-reward opportunities in peers with stronger operational momentum.
For Existing Holders: Continue to hold positions but monitor quarterly results closely for signs of normalising earnings composition. The strong capital position, attractive valuation, and stable government backing provide downside protection, whilst the turnaround story retains long-term potential. However, consider reducing exposure if non-operating income dependency persists above 60% of PBT for another quarter or if core interest income growth remains subdued.
Fair Value Estimate: ₹95-100 (3.5% to 9.0% upside from current levels), contingent on sustainable improvement in core banking metrics and normalisation of earnings composition over the next two quarters.
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
