Shares of IndusInd Bank plummeted by 18 per cent to Rs 1,049.95 per share on the BSE during intraday trading, marking a new 52-week low and reaching its lowest price since May 2023. On the NSE, shares of IndusInd Bank were trading at Rs 1,041.00 apiece, dropping 18.68 per cent. This sharp decline followed the bank’s Q2FY25 financial results, which revealed a 40 per cent year-on-year (YoY) drop in net profit to Rs 1,325.5 crore. This came despite a 5.3 per cent increase in net interest income, which rose to Rs 5,347.3 crore.
The profit drop was largely attributed to a rise in bad loans within the bank’s microfinance segment. These collateral-free loans target borrowers with annual incomes of up to Rs 300,000 and have shown increased risk exposure.
CEO Sumant Kathpalia addressed the loan growth outlook for the year, tempering expectations in light of the latest developments. “Obviously, I don’t think we should be able to do 18 per cent to 22 per cent [loan growth for the year]. I think, given what has happened, we have to watch quarter to quarter,” Kathpalia said. Loan growth stood at 13 per cent to 15 per cent over the first two quarters of this fiscal year.
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The bank’s earnings report has raised investor concerns over the challenges facing its microfinance portfolio, as well as the broader economic pressures impacting financial growth projections.
However, its net interest margin (NIM) fell by 0.21 per cent to 4.08 per cent. The lower-than-expected figures were noted alongside the bank’s ongoing efforts to bolster deposit growth and manage asset quality in its loan portfolio.
Kathpalia acknowledged that the loan growth fell short of the bank’s medium-term target of 18-20 per cent. He indicated that margins are expected to normalize to above 4.2 per cent by the fiscal year-end.
The margin contraction was attributed to a 9 per cent decline in the higher-yielding microfinance segment, a result of conservative lending strategies in response to asset quality concerns. Additionally, Kathpalia highlighted specific asset quality challenges in regions like Bihar, Jharkhand, and Maharashtra. However, he clarified that the issues in microfinance lending were not due to over-leveraging, unlike some industry peers, noting that the microfinance portfolio’s share had reduced from 12-13 per cent to 9 per cent of total loans.
