IndusInd shares drop 5% as governance doubts outweigh Q1 profit jump
IndusInd Bank's first-quarter profit surge failed to satisfy investors unconvinced that early improvements in asset quality can overcome lingering governance concerns and weak structural loan growth.
IndusInd Bank shares dropped more than 5% on Thursday as investors locked in a recent 18% rally, reacting skeptically to first-quarter results that offered only a partial turnaround.
The lender reported a net profit of ₹1,037 crore for the June quarter, up from ₹604 crore a year earlier. This improvement was supported by a 3.3% sequential increase in loans to ₹3.26 trillion and an 18 basis point drop in the gross non-performing asset ratio to 3.25%, driven by easing stress in microfinance.
However, the headline recovery obscures underlying vulnerabilities. Year-on-year loan growth actually contracted by 2.3% during the quarter, a stark contrast to the broader banking system's 18.6% expansion. Furthermore, while the reported net interest margin expanded 20 basis points sequentially to 3.57%, the adjusted margin fell 4 basis points to 3.35% once income-tax refunds are excluded. This adjustment reflects a higher proportion of low-yielding wholesale loans in the current mix, and management expects reported margins to moderate again in the second quarter.
The bank is attempting to pivot its growth strategy. Management has guided for credit costs to decline as legacy issues unwind, contributing to a targeted exit return on assets of 1% for the fiscal year. The lender expects to accelerate lending in the second half, focusing on secured retail products like mortgages and gold loans while maintaining strict underwriting standards on unsecured credit. This shift is designed to support growth and improve margins without sacrificing recent asset quality gains.
The market's cautious reception is heavily influenced by unresolved questions regarding corporate governance that have lingered since a crisis erupted in September 2024. Fresh whistleblower complaints reportedly sent in May to the Prime Minister's Office and regulators accuse the bank of insider trading, evergreening microfinance loans, and suppressing audit findings. The bank has stated it has not received any communication from authorities regarding these new allegations.
Trading at roughly 1.1 times its estimated FY28 book value, the stock leaves theoretical room for appreciation. Yet, until the lender demonstrates consistent execution and fully resolves the cloud hanging over its accounting practices, investors are unlikely to award it the valuations of its peers.
