IndusInd Bank Ltd Q2 FY2027 Concall Summary

Key Takeaways

• Recovery quarter, margin pressure absorbed: Normalized ROA improved to 0.87% from 0.63% QoQ as growth resumed, fees surged, and credit costs fell, even while NIM compressed 12 bps on FCNR (B) mobilization.
• Deposit franchise reshaped by FCNR windfall: Retail deposits jumped 11% QoQ to 50% of total, CDs shrank to 3.3%, but the same flows diluted CASA and added 7-8 bps of NIM drag that management expects to recoup over the next two quarters.
• Vehicle finance and MFI are back: Vehicle disbursements grew 17% YoY and the portfolio crossed INR1 lakh crore, while the microloan book returned to 8% QoQ growth after eight quarters of decline, with net slippage falling sharply to 2.2%.
• Unsecured lending still shrinking, but turning: Credit card and personal loan books declined 3% and 2% QoQ respectively as the bank prioritized risk quality, yet disbursement upticks signal a return to growth in coming quarters.
• What to watch next quarter: Whether the promised NIM recoupment materializes as retail growth accelerates in H2, the pace of SA account funding conversion, and any quantification of the draft IRDAI bancassurance hit.

FCNR (B) Mobilization: The Quarter's Defining Trade

• What happened: The bank mobilized USD350 crore under the RBI swap scheme, using the proceeds to replace high-cost bulk funding, which cut CDs from 5.9% to 3.3% of deposits QoQ.
• NIM cost: The mobilization compressed NIM by 7-8 bps through balance-sheet expansion and funding mix effects, with the overall NIM falling 12 bps QoQ to 3.23%. An additional 4-5 bps of pressure came from loan mix and CASA mix shifts.
• SA leakage: Savings account balances declined 5% QoQ partly because money moved from dollar savings accounts in GIFT City into FCNR (B) deposits; adjusted for this, the SA book was flat.
• Leverage mechanics: The bank funded the FCNR deployment with short-term foreign currency borrowings. When asked whether unhedged positions could produce treasury losses, management said the portfolio is managed within NOOP and Board-approved risk limits and answered "Not really," but did not disclose cost, duration, or hedge ratios.
• Recoupment path: Management expects to recover the NIM drop over Q3 and Q4, driven by higher-yielding retail asset growth in H2 (vehicles and retail book), the full-quarter effect of the CD book reduction, and continued CASA push.

Rajiv Anand: "See, also Kunal, before you get to the question, there are two parts to this, right? I mean, one is the absolute funding the rate itself that we are paying to customers. Then there is the swap cost to cover the interest component. And then the positive is the CRR/SLR impact that we don't have to maintain on these balances and what PSL benefit that we will get on this next year. So put it all together, I think just looking at this, whether it is 6 or 7 is to my mind inappropriate."

Asset Quality: Stress Fading Across the Board

• Headline improvement: GNPA improved to 2.73%, NNPA to 0.83%, SMA 1&2 fell to just 5 bps from 12 bps QoQ, and net security receipts dropped to 3 bps from 7 bps, all driven by sustained recoveries and lower fresh stress.
• MFI turnaround: Annualized net slippage fell to 2.2% from 3.4% QoQ and 14.1% YoY, while 31-90 DPD improved to 0.4% from 0.6% QoQ and 3.2% YoY, because underwriting changes made last year strengthened asset quality and restored confidence.
• Provision tailwind fading: Provisions fell 54% YoY and 12% QoQ on lower net slippages, but management cautioned that while absolute credit costs still have room to decline, the delta will not be the big driver from here as the balance sheet grows.
• Calibrated caution: The bank is watching drought-affected pockets in Karnataka, Maharashtra, and Andhra for MFI, and is maintaining a calibrated approach to growth in those states.

Loan Growth: Secured Leads, Unsecured Waits

• Vehicle finance milestone: Disbursements grew 17% YoY and 10% QoQ, with CVs up 32% YoY and PVs up 13% YoY; the portfolio crossed INR1 lakh crore. Excluding tractors and two-wheelers, vehicle disbursement grew 24% YoY. Festive demand and seasonality are expected to support H2.
• Consumer banking ex-FCNR: The loan book grew 7% QoQ led by secured retail and MSME, with home loans up 39% YoY, small business banking up 10% QoQ, and LAP up 7% QoQ.
• Unsecured still contracting: Credit card book declined 3% QoQ and personal loans declined 2% QoQ because the bank is prioritizing portfolio quality and risk-adjusted returns over volume. However, disbursements have started seeing an uptake and new customer acquisition in cards was meaningfully up, with growth expected to resume in the next few quarters.
• Wholesale broad-based: Loan book grew 10% QoQ and YoY, diversified across NBFCs, metals, transport, automobiles, digital services, and gems and jewelries, with commercial and mid-market growing fastest at 13% QoQ.
• YoY optics: Loan growth appears to trail the system because the book degrew in the two quarters ended 31 March 2026; YTD Q1 grew approximately 4-5% and momentum built in Q2.

Fee Income & Treasury: The ROA Bridge

• Non-interest income surge: Up 26% QoQ because of strong business momentum, healthy treasury income, and approximately INR100 crore in one-offs: INR40-50 crore higher FX sales from the FCNR scheme and INR48-50 crore in AFS/HTM sale gains.
• Fee granularity: Retail fees rose on higher disbursals driving processing fees, insurance distribution including credit life, locker fees, and optimization of customer charges. Wholesale fees rose to INR446 crore, up 37% YoY and 9% QoQ, with transaction banking contributing 52% on trade finance, cash management, capital markets, and government banking momentum.
• Treasury sustainability: Management believes continued market volatility will create opportunities to generate similar treasury incomes, citing strong performance from both FX and fixed-income teams.
• Opex rising with growth: Opex increased 7% QoQ because of higher business volumes, growth-related spend, and marketing and brand-building initiatives.

Rajiv Anand: "On the retail side, we have done a lot of work in terms of optimizing some of the charges to our customers and that is certainly benefiting us."

Deposit Strategy: The CASA Rebuild

• SA stagnation and the three-phase plan: After adjusting for FCNR outflows, the SA book was flat. The bank's H2 strategy is to grow SA on a granular basis through account openings, which were up 50% QoQ, then drive funding into those accounts, then cross-sell.
• Cost of deposits trajectory: Marginal increase to 5.96% from 5.93% QoQ because lower CASA mix from FCNR (B) mobilization offset downward repricing in both savings and term deposit costs. Over the next six months, management noted it looks likely there will be more rate hikes by March-end, liquidity tightening, and currency leakage in H2, making the trajectory uncertain.
• Competitive positioning: As a relatively smaller player, the bank sees ensuring relative competitiveness on deposit pricing as important and would respond to market participants' TD/SA rate increases with some lead-lag.
• Liquidity posture: The bank does not carry additional liquidity; it has paid down high-cost deposits and CDs and can always go back to the market to replenish when deployment opportunities arise, but will not push growth just because of liquidity availability.

Rajiv Anand: "The first phase is to open the account, the second is to get funding into that, and third phase is to cross-sell into these. So that's the journey that we're down."

Capital, Regulatory Risk & Medium-Term Ambition

• Tier 1 capital decline: Down 55 bps QoQ primarily due to balance sheet growth of 5-6% consuming capital, plus some increase in market risk and approximately 13 bps from other changes. RWA density was stable at 73%. An enabling provision for a capital raise is in place, with timing at the bank's discretion.
• ECL transition: One-time impact of 1.1% of loans pretax, with a recurring impact of 5-6 bps.
• Bancassurance overhang: Draft IRDAI norms pose a material impact on the bank's INR960 crore bancassurance income, approximately 15% of total fees, but management said it is too early to quantify given uncertainty on final commission structure, pass-through to consumers, and volume effects. The bank has the ability to move efforts across multi-product distribution to minimize the overall P&L impact.
• ROA ambition: Normalized ROA improved to 0.87% from 0.63% QoQ, with a 1% exit ROA targeted for this year. Medium-term ambition is to return to the 175-180 bps the bank has historically delivered, though management declined to comment on FY28 specifically, calling it a matter of execution.

Rajiv Anand: "This bank has historically delivered ROAs in the vicinity of between 175 basis points to 180 basis points. So our medium-term ambition is to get there. How soon we can get there is a matter of execution."

Guidance & Commitments

Key Metrics