IndusInd Bank Navigates Q2 FY26 with Strategic Recalibration Amidst Microfinance Challenges

IndusInd Bank Limited has reported a challenging second quarter for fiscal year 2026, posting a consolidated net loss of ₹437 crore. This outcome was primarily driven by accelerated provisioning within its microfinance portfolio. Despite the net loss, the bank's core pre-provision operating profit remained stable quarter-on-quarter, signaling underlying operational resilience. The management emphasizes that this period marks a strategic recalibration, focusing on strengthening the balance sheet and optimizing business segments for sustainable long-term growth.

The quarter saw a notable contraction in the microfinance loan book, which declined by 25% sequentially. This was a deliberate move, influenced by a cautious stance and seasonally weaker demand. In response, the bank has implemented stringent underwriting standards, including enhanced income assessments and field verifications, alongside establishing a dedicated collection vertical for overdue accounts. These measures, coupled with increased credit guarantee coverage for new disbursements, are aimed at normalizing slippages and mitigating future credit costs. While the vehicle finance segment experienced a dip in disbursements due to GST changes, management anticipates a strong rebound, supported by the festive season and broader economic recovery. The corporate banking segment, tactically slowed in previous quarters, resumed disbursements with a focus on granular mid and small corporates, maintaining healthy asset quality.

Strategic Pillars and Digital Momentum

IndusInd Bank is actively fortifying its leadership team, with several key appointments made during the quarter, including a new CFO, Head of Internal Audit, Legal Counsel, and Head of Business Transformation. Further senior hires in HR and Digital are anticipated, underscoring a commitment to enhancing strategic depth and execution capabilities. This leadership overhaul is expected to play a transformative role in shaping the bank's future trajectory.

Digital transformation remains a core strategic pillar. The bank's flagship platforms, INDIE and INDIE for Business, are demonstrating robust growth. The INDIE app now boasts over 5 million registered clients, with a 40% quarter-on-quarter growth in monthly active users (MAU), while INDIE for Business, catering to MSME clients, saw a remarkable 122% QoQ MAU growth. These platforms are proving effective in acquiring clients digitally at a lower customer acquisition cost (CAC) and are steadily increasing the overall digital transaction mix. The bank's focus on digital initiatives extends to streamlining processes and offering competitive products, aligning with a 'One Bank' approach to delivery.

Outlook and Investor Confidence

Looking ahead, IndusInd Bank aims to achieve a Return on Assets (RoA) of 1% in the medium term, supported by a diversified loan book and an accelerated retailisation journey focused on low-cost deposits. The management is confident that the proactive measures in microfinance, coupled with growth opportunities in MSME, home loans, and other retail assets, will stabilize asset quality and improve profitability. The bank's strong capital adequacy (CRAR of 17.10% and CET1 of 15.88%) and healthy liquidity position (average LCR of 132%) provide a solid foundation for pursuing these growth ambitions.

Management acknowledges the current challenges but maintains a balanced and transparent tone, emphasizing that the net loss is a result of prudent provisioning rather than systemic issues. The bank is committed to bringing its Net NPA ratio down to 50-60 basis points in the medium term and achieving a fee-to-assets ratio of approximately 1.5% over time. This quarter, while marked by necessary adjustments, sets the stage for a focused and disciplined execution of its strategic roadmap, aiming to build a more granular, less volatile, and sustainably profitable franchise.