Global brokerage firm Nomura on Tuesday upgraded IndusInd Bank’s rating to buy from neutral as it expects the financials of the bank to improve in the coming quarters, it said in a report.
The past few months have been turbulent for IndusInd Bank owing to governance failings and accounting lapses. However, the bank has undergone a significant clean-up of its books and has taken one-time provisions to address legacy issues. In Jan-Mar, the bank reported a standalone net loss of Rs 2,235.99 crores as compared to a net profit of Rs 2346.84 crores in the corresponding quarter a year ago, as per the bank’s financial results.
Nomura also increased the target price to Rs 1,050, from Rs 700 earlier. “While the event appears to have dented investor confidence temporarily, we think it demonstrates a willingness by management to front-load the pain and restore credibility,” the report said.
Nomura has pegged the loan growth to be soft at 6% on year in 2025-26 (Apr-Mar) and improve to 10% in FY27 and 13% in FY28. Furthermore, the bank has a strong business model in retail, which could aid in faster improvement of profitability over the medium term, the report said.
The bank’s capital and liquidity position remain healthy, with common equity tier-1 at 15.1% and liquidity coverage ratio at 118%.
Net interest margins are expected to stay muted at 3.4% in the current financial year, led by repo cuts and elevated cost of funding, and improve to 3.6-3.7% over the next two financial years, the report said.
“While we expect credit cost to decline to 1.6-1.3% over FY26-28F (vs. 2.1% in FY25), with stress moderating in the unsecured retail and MFI segments. Hence, we expect RoA/RoE to gradually improve to 1%/9% by FY27F,” the report said.
The brokerage firm also increased FY27-28 earnings-per-share estimates by 14-16%, led by higher net interest income and lower credit costs.
The RBI has mandated the bank to submit proposals for a new chief executive officer by Friday. The board is at an advanced stage of the selection process, is engaging with executive search firms and is exploring both internal and external candidates.
The commitment from the board to improve governance, the ongoing search for a new leadership and the clear intent to “start FY26F on a clean slate” are crucial positive signs, the report said. “RBI’s recent statements acknowledging IIB’s recovery efforts provide a degree of regulatory comfort. RBI’s potential approval for the promoter to raise stake in the bank could allay some investor concerns.”
On March 11, after the bank announced discrepancies in its derivatives book, IndusInd Bank’s stock fell 27.2% to Rs 655.95 from the previous close of Rs 900.60. Till March 25, it fell 29.24% to Rs 637.30. It gained 33.47% from March 25 low to Rs 850.60 on June 18.