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Operating performance improving; reiterates FY27 exit RoA guidance of ~1% 2QFY27 RoA improves 9bp QoQ to 0.87%

* IndusInd Bank (IIB) reported 2QFY27 PAT of INR12.4b (MOFSLe PAT: INR9.3b), attributed to healthy NII growth and strong other income.

* NII grew 4% YoY (down 2% QoQ) to INR45.7b (4% beat). NIM contracted 12bp QoQ to 3.23% vs adj. NIM of 3.35% in 1QFY27.

* Other income grew 26% QoQ (21% beat), while opex increased 7% QoQ/declined 2% YoY to INR39.4b (3% higher vs MOFSLe).

* Net advances rose 11% QoQ (11% YoY), led by strong momentum in the consumer banking and mid-market group, while unsecured retail segment like PL & CC declined. Deposits rose 3.4% QoQ (up 10.1% YoY), while CASA ratio dipped 150 bp QoQ to 27.9%.

* Fresh slippages declined 12% QoQ to INR14.6b. GNPA ratio improved 52bp QoQ to 2.73%, while the NNPA ratio declined 12bp QoQ to 0.83%. PCR ratio declined to 70.0%.

* We raise our earnings by 19%/17% in FY27/FY28E and project IIB’s RoA at 0.8%/1.1% for FY27E/FY28E. Reiterate a Neutral rating with a TP of INR1,050 (based on 1.1x Mar’28E ABV).

ECL impact guided at 1.1% of loans, with recurring credit cost of 5–6bp

* IIB reported 2QFY27 PAT of ~INR12.4b (vs. MOFSLe of INR9.3b), led by healthy NII growth and strong other income.

* NII grew 3.6% YoY (down 2.5% QoQ) to INR45.7b (4% beat), led by healthy FCNR(B) mobilization of USD3.5b. NIM contracted 12bp QoQ to 3.23% vs adj. NIM of 3.35% in 1QFY27, FCNR (B) mobilization being the major contributor (~7-8bp NIM impact).

* Other income grew 26% QoQ (36% YoY, 21% beat), led by a pickup in core fee income and healthy treasury profits. Opex rose 7% QoQ/declined 2% YoY to INR39.4b. C/I ratio, thus, increased to 57.8% vs. 57.1% in 1QFY27. PPoP growth stood at 3.6% QoQ at INR28.7b (17% beat).

* Provisions stood at INR12.2b (down 12% QoQ and 54% YoY, in-line), as slippages moderated sequentially to INR14.6b.

* Loan book rose 11.3% QoQ (11.4% YoY) to INR3.6t, led by strong FCNR(B) deposit mobilization of INR336b and leverage of INR166b against the same.

* The deposit book grew 3.4% QoQ (up 10.1% YoY) amid the strong FCNR (B) deposit mobilization, partly utilized to retire high-cost wholesale funding. CASA book declined 1.9% QoQ, leading to a dip of 150bp in CASA ratio to 27.9%. Retail deposit share stood at 50%.

* Fresh slippages declined 12% QoQ, led by improvement across segments. Provisions, thus, declined 12% QoQ to INR12.2b. Asset quality ratios improved, with GNPA/NNPA declining 52bp/12bp QoQ to 2.73%/0.83%. PCR declined to 70%.

Valuation and view

IIB reported a healthy quarter, supported by steady NII growth and strong other income. Consequently, RoA improved to 0.87% from 0.63% adj. for one-off in 1QFY27, with the bank maintaining the target of an exit RoA of ~1% by the end of FY27. Other income improved QoQ on the back of improving business momentum, while opex declined YoY. NIM contracted 12bp QoQ to 3.23% vs 3.35% (adjusted for one-off) in 1QFY27. Business momentum picked up QoQ on the back of FCNR (B)- related advances, led by strong growth in the commercial banking and mid-market segment, while unsecured retail book growth remains muted. Deposit growth was driven by strong FCNR (B) mobilization, partly utilized to retire high-cost wholesale funding, taking the retail deposit share to 50% of total deposits. The reduction in slippages was broad-based enabling improvement in asset quality ratios. The bank expects loan growth to broadly track industry growth in FY27. We raise our earnings by 19%/17% in FY27/FY28E and estimate IIB’s RoA at 0.8%/1.1% for FY27E/FY28E. Reiterate Neutral rating with a TP of INR1,050 (based on 1.1x Mar’28E ABV).

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