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After a loss in Q2, IndusInd Bank (IIB) returned to profitability in Q3 and gained further traction in Q4 on the back of lower credit cost. Credit portfolio shrunk further, as the bank continues with its portfolio recalibration strategy to weed out low-yielding and at-risk loans. Deposit pool too shrunk, as IIB released bulk deposits. These measures helped the bank to manage a slight improvement in margin to 3.4%. Asset quality also showed signs of improvement as slippage ratio reduced to 2.3% in Q4 from >3% in Q3, leading to lower credit cost. Though the bank’s long-term strategy is still evolving, the management indicated that it would target near-system credit growth in FY27. This, coupled with moderation in credit cost and a conscious effort to bring down opex, should help IIB gradually secure 1% exit RoA in FY27 from the base of 0.45% in 4QFY26. Basis a preliminary assessment, IIB believes that the West-Asia crisis shall not have meaningful impact, unless it prolongs. It has largely plugged the management gaps and initiated the reorientation of the board. We reiterate BUY and TP of Rs1,100 (valuing the bank at 1.4x FY28E ABV). We will watch out for the bank unveiling its full-fledged long-term transformation strategy.

Portfolio recalibration continues; guides for near-system growth in FY27E

IIB’s loan book continued to shrink, declining 8% YoY/0.5% QoQ, as the bank continues to run-off its low-yielding corporate portfolio and muted retail and SME book growth YoY. Within wholesale, the bank is pivoting from large corporates to more granular midcorporate and SME segments. It is also seeing strong traction in secured products like gold loans (now >Rs10bn), alongside continued caution in unsecured lending. Deposits fell ~3% YoY due to a reduction in bulk deposits, though Rs68bn of incremental retail deposits in Q4 lifted the CASA ratio by 94bps to 31%. Going ahead, management expects credit growth to track system growth of ~13–14% in FY27, with growth primarily driven by mid-market and SME segments, unless being derailed by the West-Asia crisis

Easing slippages drive GNPA improvement

Gross slippages were lower at Rs18.2bn/2.3% of loans, driven primarily by improvement in VF (Rs4.8bn) and MFI book (Rs5.0bn). This, coupled with elevated write-offs, led to a 13bps improvement in GNPA ratio at ~3.4%. The management indicated that the overall stress book continues to moderate, indicating that credit costs may have peaked, unless being hurt by the West-Asia crisis.

We retain BUY

We expect the RoA to further improve to ~1.1-1.4% over FY28-29E, as the growth/assetquality recovery gains further traction. Further, improving sectoral tailwinds (growth/margin/ asset quality) and favorable sentiment toward large private banks should further aid IIB’s re-rating. We reiterate BUY and TP of Rs1,100 (valuing the bank at 1.4x FY28E ABV). We will watch out for the bank to unveil its full-fledged long-term transformation strategy. Key risk to our call: Earlier-than-expected business/asset quality turnaround.

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