Governance failures, accounting lapses, financial discrepancies and strategic uncertainty – IndusInd Bank is at a critical crossroads. With fresh leadership on the horizon and early signs of strategic realignment, the Bank is looking to stage a gradual recovery from Q2FY26, according to brokerage Motilal Oswal.
“We expect a gradual recovery from Q2FY26 onwards, with momentum strengthening further into FY27. We, thus, estimate loan and deposit growth to remain tepid at 6.5-7 per cent YoY each for FY26E,” MoFSL said.
IndusInd Bank has seen a sharp drop in performance due to problems with asset quality and some accounting issues. While the Bank has acknowledged these setbacks, high provisions and pressure on margins are expected to weigh on its earnings in the near future.
The Q4FY25 performance and the incidents that caused it
For the fourth quarter of FY25, IndusInd Bank posted a loss of Rs 2,328.92 crore in comparison to a profit of Rs 2,349.08 crore recorded during the corresponding quarter of FY24. The net interest income (NII) for the quarter stood at Rs 3,048.3 crore, down 43.3 per cent on-year. The Bank reported a normalized net interest margin (NIM) of 3.47 per cent during Q4.
The brokerage firm said that the profitability has taken a hit, with return on assets (RoA) projected to stay low at 0.5 per cent in FY26, but improve gradually to around 1 per cent by FY28, signaling a slow recovery after the FY25 disruptions. For the full year, however, the Bank reported net profit at Rs 2575.41 crore.
The private sector lender has been under fire after the Bank confirmed accounting irregularities totalling Rs 1,269 crore. Before this, earlier in March, IndusInd Bank had disclosed a Rs 1,580 crore discrepancy in its derivatives portfolio. Motilal Oswal maintained that the Bank’s microfinance (MFI) segment continues to face challenges, which will likely keep overall business growth weak in the short term.
The CEO appointment
The earnings slump wasn’t the only setback. A larger concern loomed in the form of governance lapses and accounting irregularities, triggering top-level resignations. On May 1, Sumant Kathpalia had resigned from his position taking moral responsibility for the accounting discrepancies in the Bank’s derivatives portfolio. This was followed by deputy CEO Arun Khurana’s resignation.
The Bank’s board had then sought approval from the Reserve Bank of India (RBI) to form a ‘committee of executives’ to temporarily carry out the CEO’s duties and responsibilities until someone permanent is appointed.
Another positive in this regard is that the Bank has submitted its list of candidates for the next CEO to the RBI before the set deadline. A Reuters report citing sources, had earlier confirmed the names of the three candidates as Axis Bank’s Deputy Managing Director Rajiv Anand, HDFC Bank’s Executive Vice President Rahul Shukla, and Bajaj Finance’s Managing Director Anup Saha.
“We await further clarity on the appointment of the new CEO and the strategic direction under their leadership, which will help provide better visibility on the Bank’s growth outlook and overall strategy,” Motilal Oswal said.
Despite ongoing uncertainties and softness in performance, Motilal Oswal reiterated its Neutral rating. However, it added, “We take off the bear case multiples previously attributed to the stock due to heightened irregularities and lack of confidence in the reported numbers, even as our earnings estimates remain broadly unchanged.”
IndusInd’s revival: Loan growth status
IndusInd Bank showed weak loan growth as it prioritized maintaining strong liquidity amid ongoing accounting issues. For FY25, overall advances grew just 0.5 per cent year-on-year, while the loan book shrank 6 per cent quarter-on-quarter in Q4FY25. This downward trend, Motilal Oswal said, is likely to continue in the near term due to ongoing challenges, especially in the microfinance and vehicle finance segments.
“We remain cautious about the Bank’s growth strategy and await further clarity on loan growth following the management change,” it said.
IndusInd’s revival: To cut high-cost deposits
According to the brokerage firm, IndusInd Bank’s deposit growth is expected to remain modest at 6.5 per cent in FY26, improving to 10.5 per cent by FY27. The Bank is now focusing more on attracting retail deposits, especially CASA (current and savings accounts), which are projected to grow faster than overall deposits—rising 9.4 per cent in FY26 and about 12.5 per cent in FY27—leading to a healthier deposit mix, it added.
IndusInd’s revival: NIMs under pressure in the short term
IndusInd Bank’s net interest margins (NIMs) are likely to stay under pressure in the near term due to the impact of recent repo rate cuts, weak performance in high-yield segments like microfinance, and slower growth in the vehicle finance business.
Motilal Oswal said that margins are expected to dip by about 25 basis points in Q1FY26, settling around 3.2–3.3 per cent. However, NIMs should start stabilizing from Q2FY26 as recent savings account rate cuts take effect and bulk deposit costs decline. Over FY25–28, net interest income (NII) is projected to grow at a compound annual rate of 8.7 per cent, it added.
IndusInd’s revival: Credit costs to stay high
Credit costs, Motilal Oswal said, are projected to stay high at 155 basis points in FY26, easing slightly to 140 basis points in FY27, despite stability in other loan segments.
To conclude…
While IndusInd Bank continues to grapple with asset quality challenges, elevated credit costs, and near-term margin pressure, steps towards leadership transition and strategic recalibration offer a glimmer of hope.
However, given the ongoing operational headwinds and lack of earnings momentum, Motilal Oswal maintained its Neutral stance.