IndusInd Bank Q1 Review: RoA Recovery 'Further Away' — Should You Buy, Sell Or Hold?
Despite a beat on net interest income (NII), the core pre-provision operating profit missed estimates across brokerages.
IndusInd Bank’s Q1FY26 results have ignited concerns around asset quality, profitability, and the bank’s ability to return to a sustainable growth trajectory. While the bank reported a net profit of Rs 684 crore, recovering from a loss in the previous quarter, analysts across the board flagged familiar issues. These included elevated slippages, a sharp drop in fee income, and subdued return ratios.
The bank’s gross NPA ratio rose to 3.64% from 3.13% in Q4FY25, while net NPA increased to 1.12%. Fee income fell sharply, and loan growth contracted 4% YoY. Despite a beat on net interest income (NII), the core pre-provision operating profit (PPOP) missed estimates across brokerages.
Bernstein On IndusInd
Bernstein highlighted that while the clean-up from the previous quarter didn’t carry over, the return of asset quality issues and a sharp drop in fee income dragged down profitability.
“Slippages were Rs 2,570 crore versus Rs 1,540 crore in 1QFY25, and credit costs were higher too at 200 basis points,” the brokerage noted.
“Fee income dropped to 1.1% of assets versus the long-term range of 1.8%, and management is suggesting this as the new baseline,” it added.
Bernstein also flagged concerns about the sustainability of RoA, “From the current 0.45% RoA, an eventual 1% RoA looks further away now but not impossible… A return to growth is probably equally far away.”
On growth metrics, Bernstein was blunt and stated, “There were no pretty metrics this quarter—loan growth was 4% lower YoY, deposits were flat, CASA ratio dropped by 6pp, and NIM was lower by 79 basis points YoY.”
Morgan Stanley On IndusInd Bank
Morgan Stanley acknowledged the beat on NII but emphasised the broader weakness in core earnings and asset quality.
“The positive was a 9% beat on net interest income… but the negative was a substantial miss on core fees, 32% below our estimates,” it said.
The brokerage also flagged persistent stress in the microfinance segment and said, “Elevated slippages in the MFI segment, GNPL ratios moved higher in other segments due to lower ARC sales/write-offs.”
Despite the weak quarter, Morgan Stanley maintained its price target, citing some clarity on earnings trajectory.
“We have reduced earnings by 15–20% in FY26–28… but our target price of Rs 750 is unchanged as we reduce bear case weight," it said.
Macquarie On IndusInd Bank
On the results Macquarie said that sub-par return ratios are likely to persist.
“ROA for 1QFY26 was 0.51%… Sub-par ROAs and ROEs at 0.5% and 4% levels respectively appear to be the new normal,” it said.
The brokerage acknowledged the NIM beat and treasury gains but flagged the 35% YoY drop in fee income and a 47% YoY decline in core PPOP.
“Slippages remained elevated at 300 basis points, primarily driven by microfinance ( and vehicle segment,” Macquarie noted.
On the outlook for credit costs and margins the brokerage noted that, “Credit costs could remain near current levels… NIMs can remain range-bound given the large proportion of fixed rate book and MCLR-linked.”
Macquarie maintained its Underperform rating, citing limited upside, “Given the slippage trends and management aspirations to reduce net NPA to 60bps, we believe sustainable RoAs of 1% are still out of reach.”
