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A healthy quarter; margins expand 2bp QoQ One-off gain in other income utilized to create a provisioning buffer

* Indian Bank (INBK) reported a 2QFY27 PAT of INR34.6b, up 15% YoY/6% QoQ (in line), as a one-off gain in other income was utilized to create a provisioning buffer (additional ECL provision of INR15b created against the INR13.8b gain from the sale and revaluation of its NSE stake).

* NII grew 18% YoY/4% QoQ to INR77.2b (in line with our est. of INR76.4b). NIM improved by 2bp QoQ to 3.31% (in line).

* Advances grew 17.5% YoY/5.7% QoQ, while deposits rose 12.5% YoY/3.5% QoQ. Consequently, the C/D ratio rose by 171bp to 81.4%. Domestic CASA came in slightly lower at 39.4% vs. 39.7% in 1QFY27.

* Slippages declined to INR12b from INR13b in 1QFY27. The bank made additional floating provisions of INR15b for the ECL transition (cumulative INR25b), with further residual provisions of INR10b expected. GNPA/NNPA ratios improved by 25bp/1bp QoQ to 1.61%/0.14%. PCR stood at 91.5%.

* We raise our earnings estimates by ~3% for FY27/FY28 and estimate the bank to deliver an FY28E RoA/RoE of 1.4%/18.7%. Reiterate BUY with an unchanged TP of INR1,025 (premised on 1.4x Mar’28E ABV).

Business growth steady; asset quality improves

* INBK’s 2Q PAT of INR34.6b was up 15% YoY/6% QoQ (in line) as a one-off gain in other income was utilized to create a provisioning buffer.

* NII grew 18% YoY/4% QoQ to INR77.2b (in line). NIM improved 2bp QoQ to 3.31%. NIM expansion of 5-6bp expected in 3QFY27 owing to the repo hike.

* Other income showed strong growth of 59% YoY/ 50% QoQ to INR39.5b (39% higher than MOFSLe), led by the INR13.8b gain from the sale and revaluation of the NSE stake. Total revenue, thus, rose 29% YoY/16% QoQ to INR116.7b.

* Opex grew 9% YoY/2% QoQ to INR45.8b (4% lower than est.). The C/I ratio declined to ~39.3%. PPoP grew 47% YoY/ 28% QoQ (24% beat) to INR70.9b.

* Advances jumped 17.5% YoY/5.7% QoQ to ~INR7.1t, led by the Agri and MSME books. Retail loans grew 17.4% YoY/4.3% QoQ. Within retail, gold loans grew 4.1% QoQ and housing loans rose 3.7% QoQ. Agri advances rose 8.1% QoQ, MSME rose 5.5% QoQ, and corporate grew 1.3% QoQ.

* Deposits grew 12.5% YoY/3.0% QoQ aided by USD2.4b of FCNR(B) deposits. Consequently, the C/D ratio rose 171bp QoQ to 81.4%. The CASA ratio declined marginally to 35.9%, with domestic CASA at 39.4%.

* Slippages declined to INR12b from INR13b in 1QFY27. GNPA/NNPA ratios improved by 25bp/1bp QoQ to 1.61%/0.14%. PCR stood at 91.5%. Credit cost was flat at 22bp excluding the additional ECL provision.

* The total SMA book stood at 0.21% vs. 0.26% in 1QFY27 with improvement across the SMA 0, 1, and 2 buckets.

Valuation and view

INBK reported an in-line quarter, with a one-off gain in other income being offset by an additional provisioning buffer. NIM improved by 2bp QoQ to 3.31% and is further expected to improve by 5-6bp in 3QFY27 aided by rate hikes. Credit growth guidance was maintained at 13-14%, marginally higher than deposit growth. The bank made additional floating provisions of INR15b for the ECL transition impact (cumulative INR25b), with further residual provisions of INR10b expected. On asset quality, slippages and credit costs came in lower, with asset quality improving across asset classes. The bank maintains a best-in-class PCR, providing comfort regarding incremental credit costs. Further, the transition to ECL is expected to have a manageable impact alongside a manageable increase in steady-state credit costs. We raise our earnings estimates by ~3% for FY27/FY28 and anticipate the bank to deliver an FY28E RoA/RoE of 1.4%/18.7%. Reiterate BUY with the unchanged TP of INR1,025 (premised on 1.4x Mar’28E ABV).

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