IndusInd Bank’s management promises a return to 1% profitability by 2027—but the path from 0.12% may be uphill
If some banks are choosing safety over margins, IndusInd Bank is trying to extinguish a siren. The private lender’s third-quarter results read like a case study in financial firefighting: profits down 89-91% year-over-year, bad loans festering across multiple segments, and a return on assets so anemic it barely registers at 12 basis points—that’s 0.12%, or roughly what you’d earn parking money in a savings account.
Yet two leading brokerages have just upgraded their view on the stock, with Nuvama moving from ‘Reduce’ to ‘Hold’ and raising its target price by 50% from ₹600 to ₹900. Philip Capital maintains ‘Neutral’ with a target of ₹810. Their thesis? The worst is over, and earnings have “bottomed out.”
For wealth creators, the question is stark: Is this a contrarian opportunity to buy quality at distressed prices, or a value trap where cheap gets cheaper?
The Damage Report
Let’s start with the facts. IndusInd reported a profit of just ₹130 crore in Q3FY26, down from ₹1,190 crore a year ago—a staggering 89% collapse. The bank actually turned a profit from a loss the previous quarter, but as Nuvama notes, this “missed consensus estimate on higher credit cost and wage provision.”
The loan book is shrinking, not growing. Total advances fell 13.5% year-over-year and 2.6% quarter-over-quarter, driven by what management calls “balance sheet optimisation.” Philip Capital explains the composition: “Loan book seen degrowth of 13.5% yoy & 2.6% qoq driven by 46% yoy /28.5% yoy de-growth in micro finance and wholesale book.”
The Stock Price Reality Check
Here’s where it gets interesting. Nuvama’s new target of Rs 900 values the bank at just 1x book value.
Philip Capital’s ₹810 target is even more conservative at 0.9x FY28 book value. As they note: “Maintain NEUTRAL with PT of Rs 810 (Rs 790 earlier), thus valuing bank at 0.9x FY28E ABVPS.”
Yet both firms see enough green shoots to upgrade or maintain constructive views. Nuvama’s rationale is straightforward: “We are increasing TP to INR900/1x BV from INR600 as we believe earnings have bottomed.”
The Profitability Crater
The bank’s return on assets hit a dismal 12 basis points in Q3FY26. Philip Capital projects a brutal trajectory: “We estimate earnings growth of -80%/475%/62% in FY26/27 (owing to low base), translating into ROE of 1%/4%/7% respectively.” That’s return on equity of just 1% this year, rising to 4% next year and 7% the year after.
Management’s PACE turnaround plan targets 1% RoA “by end-FY27″—essentially two years from now. Nuvama captures the challenge: “RoA delivery will depend on the pace of decline in slippage as the bank also aspires to lower net NPA to 0.6% from 1%.”
The asset quality problems are concentrated. Bad loans (GNPAs) stood at 3.56% of total loans, with net NPAs at 1.04%—both elevated for a private bank.
Write-offs remained elevated at ₹2,600 crore versus ₹2,500 crore the previous quarter—essentially taking losses upfront rather than letting them fester. As Philip Capital notes: “GNPA/NNPA stable at 3.56%/1.04% from 3.6%/1.04% in Q2FY26 due to high provision and write-off.”
Credit costs—the actual expense of bad loans as a percentage of the loan book—hit 2.6% in Q3, down from 3.1% the previous quarter but still nearly double the “normalized level of 1.4–1.5%” that Nuvama references.
The Silver Linings
Amid the wreckage, there are genuine positives that justify the upgraded outlooks.
Margins Stabilizing: Core NIM (Net Interest Margin—the spread between lending and borrowing rates) improved 3 basis points quarter-over-quarter to 3.35%. As Nuvama notes: “Core NIM improved 3bp QoQ to 3.35% while reported NIM improved 20bp to 3.52% due to one-off recovery.”
That reported NIM of 3.52% included one-time gains, but even the core 3.35% suggests the bank is maintaining pricing power despite shrinking the loan book. Philip Capital explains the composition: “Yield on advance and cost of deposit are down -15bps yoy to 11.08% and -14bps yoy to 6.09%.” Both are declining in tandem, preserving the margin.
Operating Leverage Improving: Despite all the problems, core operating profit (PPOP before provisions) actually rose 12% quarter-over-quarter, beating Nuvama’s estimate by 16%. The driver? “Core opex fell 7% QoQ through cost efficiencies.”
Philip Capital elaborates: “Opex increased 0.4% yoy & -0.4% qoq to Rs 40bn. Employee expenses up by 29% yoy to Rs 19bn [including ₹230 crore for new labour code] and other opex declined by 16% yoy to Rs 21bn.”
So should wealth creators buy into this turnaround story at 0.9-1x book value?
Nuvama’s core thesis is simple: “We believe earnings have bottomed.” If credit costs normalize from 2.6% to 1.5% over the next six quarters, and the margin holds at 3.35%, the math works for meaningful earnings recovery.
The risk-reward at sub-1x book value compensates for execution risk, especially with early indicators (lower DPDs, higher disbursements, stable margins) pointing in the right direction.
But there is a catch. Philip Capital states: “Given the uphill task of bringing house to order, the recovery of RoA to 1% level would take some time.”
