IndusInd Bank’s stock fell nearly 19% on Friday, marking its largest decline in over four years, following disappointing earnings for the July–September quarter (Q2) of FY25. The bank’s net profit plummeted 40% year-on-year due to higher provisions resulting from slippages in its microfinance portfolio. This decline wiped out ₹18,500 crore in market capitalization, bringing it down to ₹81,136 crore, with the stock closing at ₹1,042—its lowest price in over 19 months.
In its Q2 earnings report released on Thursday, the bank noted an 8% year-on-year decline in pre-provision operating profit, primarily driven by lower margins linked to a decrease in the microfinance loan book and reduced fee income.
IndusInd Bank’s shares have dropped 28% this month, causing its ranking among India’s most valuable banks to fall to 12th position. Additionally, the consensus 12-month target price for the stock has been revised down by 11%, from ₹1,749 to ₹1,549, according to Bloomberg data.
Suresh Ganapathy, managing director and head of financial services research at Macquarie Capital, highlighted microfinance as a significant issue for the bank. He pointed out that while overall slippages were at a manageable 2%, the microfinance sector poses greater challenges due to low recovery rates. IndusInd Bank’s credit costs have surged to 2.1% in Q2, up from 1.2% in Q1, partly due to higher slippages in the microfinance segment, where gross non-performing assets (NPAs) rose from 5.2% in Q1 to 6.5% in Q2.
The bank’s management has revised its loan growth expectations from 18-23% to 16-18%, indicating that much of this growth is contingent on the economic environment. They expressed caution regarding the microfinance sector due to increasing stress but remain optimistic about potential recovery driven by rural growth.
Motilal Oswal Research noted that while stress may persist in the microfinance and card businesses in the near term, overall slippages are expected to remain manageable, helping maintain stable asset quality. They also emphasized the importance of monitoring improvements in asset quality within the microfinance sector and the Reserve Bank of India’s approval for the bank’s managing director and CEO’s new term.