The stock, trading at ₹751.45 as of October 18, 2025, has witnessed a catastrophic 44.23% decline over the past year, significantly underperforming the banking sector and broader market indices. With gross non-performing assets (NPAs) surging to 3.64% and net NPAs climbing to 1.12%, investors are confronting fundamental questions about the bank's credit underwriting standards and risk management framework.
The quarterly loss stems from a toxic combination of deteriorating asset quality, compressed margins, and weakening deposit franchise. Interest earned declined 8.49% quarter-on-quarter to ₹11,608.63 crores, whilst the bank's ability to generate low-cost deposits continued to erode, with the CASA ratio plummeting to 31% from 36% a year earlier. This represents a structural shift that threatens the bank's competitive positioning in an increasingly crowded private banking landscape.
| Metric | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 |
|---|---|---|---|---|---|
| Interest Earned (₹ Cr) | 11,608.63 | 12,263.88 | 10,633.84 | 12,800.77 | 12,686.28 |
| QoQ Change | ▼ 5.34% | ▲ 15.33% | ▼ 16.93% | ▲ 0.90% | — |
| Net Profit (₹ Cr) | -436.94 | 604.05 | -2,328.92 | 1,402.35 | 1,331.26 |
| YoY Change | ▼ 132.82% | ▼ 72.18% | ▼ 199.15% | ▼ 39.07% | — |
| Net Interest Margin (%) | — | 3.46 | 2.25 | 3.93 | 4.08 |
| Gross NPA (%) | — | 3.64 | 3.13 | 2.25 | 2.11 |
Financial Performance: A Quarter of Reckoning
The bank's Q2 FY26 results reveal a comprehensive breakdown across multiple operational metrics. Interest earned of ₹11,608.63 crores declined 5.34% quarter-on-quarter and 8.49% year-on-year, reflecting both volume and yield pressures. Interest on advances, the core revenue driver, fell to ₹9,193.62 crores from ₹9,650.56 crores in the previous quarter, indicating weakening loan book momentum.
Interest expended rose to ₹7,199.26 crores, compressing net interest income to ₹4,409.37 crores—a 4.97% sequential decline. The net interest margin for Q1 FY26 stood at 3.46%, down from 4.08% in the year-ago period, representing a concerning 62 basis point erosion that reflects both funding cost pressures and asset quality deterioration.
Operating profit before provisions collapsed to ₹2,047.34 crores, down 20.25% quarter-on-quarter, as the bank struggled to control expenses whilst revenue growth stalled. The pre-tax loss of ₹583.85 crores (versus a profit of ₹1,779.73 crores a year earlier) underscores the magnitude of provisions required to address mounting credit stress.
Asset Quality Crisis: The Core Challenge
The deterioration in asset quality represents IndusInd Bank's most pressing challenge. Gross NPAs surged to 3.64% in Q1 FY26 from 2.11% in Q2 FY24, whilst net NPAs climbed to 1.12% from 0.64% over the same period. This represents a near-doubling of stressed assets within a year, raising fundamental questions about the bank's underwriting standards and portfolio composition.
The provision coverage ratio held steady at 70%, suggesting the bank is maintaining adequate buffers, but the absolute quantum of provisions required has overwhelmed profitability. The sequential increase in gross NPAs from 3.13% in Q4 FY25 to 3.64% in Q1 FY26 indicates that asset quality pressures are accelerating rather than stabilising.
The capital adequacy ratio declined to 16.63% (Tier 1: 15.48%) in Q1 FY26 from 17.55% (Tier 1: 16.15%) a year earlier, reflecting the erosion of capital through losses and potentially higher risk-weighted assets. Whilst still comfortably above regulatory minimums, the downward trajectory limits the bank's ability to absorb further shocks or pursue aggressive growth.
⚠️ Critical Asset Quality Deterioration
Gross NPAs doubled: From 2.11% in Sep'24 to 3.64% in Jun'25, representing ₹12,550+ crores of stressed assets based on advances of ₹345,019 crores.
Net NPAs surged 75%: Rising to 1.12% from 0.64%, indicating provisions are not keeping pace with fresh slippages.
Sequential worsening: Asset quality deteriorated every quarter since Sep'24, suggesting systemic issues rather than isolated incidents.
Deposit Franchise Under Pressure: CASA Erosion
Perhaps equally concerning is the erosion of IndusInd Bank's deposit franchise. The CASA ratio plummeted to 31% in Q1 FY26 from 36% in Q2 FY24 and 38% in Q4 FY23, representing a 700 basis point decline over two years. This structural shift fundamentally alters the bank's funding profile, forcing greater reliance on expensive term deposits and wholesale funding.
Total deposits stood at ₹410,862.27 crores as of March 2025, up 6.84% year-on-year, but the composition shift towards higher-cost deposits has compressed margins. The inability to attract and retain low-cost current and savings accounts reflects competitive pressures and potentially customer confidence issues stemming from the bank's publicised asset quality challenges.
Borrowings increased to ₹53,703.55 crores in FY25 from ₹47,611.41 crores in FY24, further indicating funding pressures. The combination of rising borrowings and declining CASA creates a vicious cycle where funding costs rise, margins compress, and profitability deteriorates—limiting the bank's ability to invest in customer acquisition and retention.
| Quarter | CASA Ratio | QoQ Change | Net Interest Margin |
|---|---|---|---|
| Jun'25 | 31.00% | ▼ 200 bps | 3.46% |
| Mar'25 | 33.00% | ▼ 200 bps | 2.25% |
| Dec'24 | 35.00% | ▼ 100 bps | 3.93% |
| Sep'24 | 36.00% | ▼ 100 bps | 4.08% |
| Jun'24 | 37.00% | ▼ 100 bps | 4.25% |
Peer Comparison: Lagging Industry Leaders
IndusInd Bank's current challenges become starker when viewed against peer performance. The bank's price-to-book value ratio of 0.89x appears attractive on the surface, trading at a discount to peers like IDFC First Bank (1.52x), Federal Bank (1.59x), and Yes Bank (1.49x). However, this discount reflects justified concerns about asset quality and profitability rather than a valuation opportunity.
Return on assets of 0.21% in Q1 FY26 significantly trails Federal Bank (1.12%) and Bandhan Bank (1.07%), indicating fundamental profitability challenges. The net NPA ratio of 1.12% is nearly double that of Yes Bank (0.30%) and Federal Bank (0.48%), whilst the gross NPA ratio of 3.64% substantially exceeds all major private sector peers.
| Bank | P/BV Ratio | ROA (%) | Net NPA (%) | Gross NPA (%) | CAR (%) |
|---|---|---|---|---|---|
| IndusInd Bank | 0.89x | 0.21 | 1.12 | 3.64 | 15.48 |
| IDFC First Bank | 1.52x | 0.36 | 0.55 | 1.97 | 12.80 |
| Federal Bank | 1.59x | 1.12 | 0.48 | 1.91 | 14.69 |
| Yes Bank | 1.49x | 0.66 | 0.30 | 1.60 | 14.00 |
| Bandhan Bank | 1.07x | 1.07 | 1.36 | 4.96 | 18.30 |
The capital adequacy ratio of 15.48% (Tier 1), whilst adequate, trails Bandhan Bank (18.30%) and provides limited buffer for growth or further deterioration. IndusInd's dividend yield of 0.00% reflects the bank's inability to reward shareholders given current profitability challenges, contrasting sharply with Federal Bank (0.56%) and Bandhan Bank (0.93%).
Valuation Analysis: Discount Reflects Distress
IndusInd Bank's current valuation metrics paint a picture of a bank in distress. The price-to-earnings ratio of 49.82x appears elevated, but this figure is distorted by depressed trailing twelve-month earnings. The price-to-book value of 0.91x represents a 9% discount to stated book value of ₹826.68 per share, reflecting market scepticism about the quality and recoverability of assets.
The stock has declined 44.74% from its 52-week high of ₹1,359.95, trading just 24.12% above its 52-week low of ₹605.40. This price action reflects sustained selling pressure as investors reassess the bank's risk profile and growth prospects. The valuation grade recently changed to "Attractive" on October 15, 2025, at ₹740.40, but this assessment appears premature given deteriorating fundamentals.
With a market capitalisation of ₹57,535 crores, IndusInd Bank ranks eighth among 26 private sector banks, positioning it as a significant mid-cap player. However, the combination of negative earnings momentum, deteriorating asset quality, and compressed margins suggests the current valuation discount may widen before stabilising.
Valuation Dashboard
P/E Ratio (TTM): 49.82x (Elevated due to earnings collapse)
Price-to-Book Value: 0.91x (9% discount to book value)
Dividend Yield: 0.00% (No dividends given losses)
52-Week Range: ₹605.40 - ₹1,359.95 (Currently ₹751.45)
Overall Assessment: Expensive relative to deteriorating fundamentals
Shareholding Pattern: Institutional Confidence Wavering
The shareholding pattern reveals significant institutional repositioning over recent quarters. Foreign institutional investors (FIIs) increased their stake to 33.69% in Q1 FY26 from 29.53% in Q4 FY25, representing a 4.16 percentage point increase. However, this follows a sharp 9.37 percentage point decline in Q3 FY25, suggesting volatility in foreign investor sentiment rather than sustained conviction.
Mutual fund holdings declined to 25.36% from 27.55% quarter-on-quarter, continuing a trend of domestic institutional selling. The 2.19 percentage point reduction indicates that domestic fund managers are reducing exposure amidst concerns about asset quality and profitability. Insurance company holdings also declined marginally to 7.18% from 7.43%.
Promoter holding remained stable at 15.82%, with Indusind International Holdings Ltd. holding 12.05% and Indusind Limited holding 3.77%. The absence of promoter pledging provides some comfort, but the stable promoter stake also means limited support through open market purchases during periods of stress.
| Category | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|
| Promoter | 15.82% | 15.83% | 16.29% | ▼ 0.01% |
| FII | 33.69% | 29.53% | 24.74% | ▲ 4.16% |
| Mutual Funds | 25.36% | 27.55% | 30.31% | ▼ 2.19% |
| Insurance | 7.18% | 7.43% | 9.27% | ▼ 0.25% |
| Other DII | 1.02% | 1.72% | 3.23% | ▼ 0.70% |
Stock Performance: Catastrophic Wealth Destruction
IndusInd Bank's stock performance represents one of the most severe wealth destruction episodes in the Indian private banking sector. The one-year return of -44.23% dramatically underperforms the Sensex return of 3.64%, generating negative alpha of -47.87 percentage points. This underperformance extends across all meaningful timeframes.
Over three years, the stock has declined 37.37% whilst the Sensex gained 43.73%, resulting in -81.10 percentage points of underperformance. The five-year return of 23.58% pales against the Sensex's 109.97% gain, translating to -86.39 percentage points of underperformance. Even the ten-year return of -21.92% versus the Sensex's 208.48% gain highlights sustained value destruction.
The stock's technical trend remains "Mildly Bearish" as of October 9, 2025, having oscillated between bearish and mildly bearish since August 2025. The stock trades below all key moving averages—50-day (₹754.77), 100-day (₹795.51), and 200-day (₹834.06)—indicating sustained downward pressure with no clear support levels.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -1.58% | 1.76% | -3.34% |
| 1 Month | 1.72% | 1.52% | +0.20% |
| 3 Months | -13.11% | 2.06% | -15.17% |
| 6 Months | -5.41% | 6.87% | -12.28% |
| YTD | -21.74% | 7.44% | -29.18% |
| 1 Year | -44.23% | 3.64% | -47.87% |
| 3 Years | -37.37% | 43.73% | -81.10% |
The stock's beta of 1.20 indicates higher volatility than the broader market, amplifying downside moves during market corrections. With volatility of 43.70% versus the Sensex's 12.54%, IndusInd Bank represents a high-risk, low-return proposition—a combination that typically drives sustained selling pressure until fundamentals stabilise.
"IndusInd Bank's 44% one-year decline represents more than market pessimism—it reflects fundamental deterioration in asset quality, profitability, and competitive positioning that demands comprehensive restructuring rather than tactical adjustments."
Investment Thesis: Quality Concerns Override Valuation
The investment thesis for IndusInd Bank has fundamentally shifted from growth story to turnaround play. The bank's quality grade of "Good" masks recent deterioration, having been downgraded from "Excellent" in June 2025. The financial trend is classified as "Negative" as of June 2025, following a "Very Negative" assessment in March 2025, indicating sustained fundamental weakness.
The Mojo Score of 35 out of 100 places IndusInd Bank firmly in "Sell" territory, having declined from 51 (Hold) in December 2024. This 16-point deterioration in just ten months reflects the rapid unravelling of the bank's investment case. The technical trend remains "Mildly Bearish," providing no support from momentum indicators.
Return on equity of 1.83% in the latest quarter represents a collapse from historically healthy levels, indicating the bank is destroying shareholder value at current profitability levels. The combination of negative earnings momentum, deteriorating asset quality, compressed margins, and eroding deposit franchise creates a perfect storm that overwhelms any valuation-based buying argument.
Investment Parameters Dashboard
Overall Mojo Score: 35/100 (Sell Category)
Quality Grade: Good (downgraded from Excellent)
Financial Trend: Negative (deteriorating)
Technical Trend: Mildly Bearish
Valuation: Expensive (despite low P/BV)
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Adequate Capitalisation: CAR of 16.63% provides buffer above regulatory minimums, though declining trajectory is concerning
- Established Franchise: Fifth-largest private sector bank with pan-India presence and diversified business lines
- Zero Promoter Pledging: Promoter stake of 15.82% is entirely unpledged, indicating no immediate governance concerns
- Provision Coverage: PCR of 70% suggests reasonable provisioning buffers, though adequacy depends on asset quality trajectory
- Valuation Discount: P/BV of 0.91x trades below book value, potentially offering value if turnaround succeeds
⚠ KEY CONCERNS
- Asset Quality Collapse: Gross NPAs doubled to 3.64%, net NPAs to 1.12%, with no signs of stabilisation
- Profitability Crisis: Net loss of ₹436.94 crores in Q2 FY26 versus profit of ₹1,331.26 crores year-ago
- CASA Erosion: Low-cost deposits declined to 31% from 36%, fundamentally weakening funding profile
- Margin Compression: NIM declined 62 bps to 3.46%, reflecting funding pressures and asset quality issues
- Institutional Selling: Mutual funds and insurance companies reducing stakes amidst deteriorating fundamentals
- Stock Performance: 44% one-year decline with sustained bearish technical trend and high volatility
- Competitive Positioning: Lagging peer banks across profitability, asset quality, and deposit franchise metrics
Outlook: What to Watch
POSITIVE CATALYSTS
- Asset Quality Stabilisation: Gross NPA ratio declining for two consecutive quarters would signal worst is over
- Return to Profitability: Positive net profit for two consecutive quarters indicating normalisation
- CASA Recovery: Low-cost deposits increasing to 35%+ levels, improving funding profile
- Management Commentary: Clear articulation of problem loans, resolution timeline, and strategic priorities
- Capital Raising: Successful equity infusion to strengthen balance sheet and support growth
RED FLAGS
- Further NPA Deterioration: Gross NPAs exceeding 4% or net NPAs above 1.5% would signal deeper stress
- Continued Losses: Additional quarterly losses eroding capital and shareholder confidence
- Deposit Flight: CASA ratio falling below 30% or total deposit growth turning negative
- Institutional Exit: FII or mutual fund holdings declining below 30% and 20% respectively
- Regulatory Action: RBI imposing restrictions on lending, branch expansion, or dividend payments
The Verdict: Avoid Until Stabilisation
Score: 35/100
For Fresh Investors: Avoid initiation at current levels. The combination of deteriorating asset quality, sustained losses, eroding deposit franchise, and compressed margins creates a high-risk profile with no clear catalyst for near-term recovery. Wait for at least two consecutive quarters of asset quality stabilisation and return to profitability before considering entry.
For Existing Holders: Consider reducing exposure on any technical bounce towards ₹800-850 levels. The fundamental deterioration is structural rather than cyclical, requiring comprehensive management action and potentially capital infusion. Book losses if position size exceeds 2-3% of portfolio to manage risk.
Fair Value Estimate: ₹650-700 (13% downside from current levels), based on 0.8x P/BV multiple reflecting elevated risk profile and return to profitability uncertainty.
IndusInd Bank's Q2 FY26 results represent more than a disappointing quarter—they signal fundamental challenges requiring comprehensive restructuring. The bank must stabilise asset quality, rebuild its deposit franchise, and restore profitability before investors can confidently reassess its investment merits. Until clear evidence emerges of operational turnaround and sustained improvement across key metrics, the stock remains a high-risk proposition unsuitable for conservative investors.
⚠️ 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.
