IndusInd Bank, one of India’s leading private sector banks, has been under the spotlight following its release of a mixed business update for the January-March quarter (Q4FY25). The bank’s quarterly performance has raised concerns among investors and analysts, leading to a sharp drop in its stock price. While there have been positive aspects to the update, several negative factors have overshadowed the bank’s performance, prompting a reassessment of its stock.
In this blog, we will go through the facts of IndusInd Bank’s recent quarterly update, discuss the reasons why the market reacted negatively, and examine the outlook of key brokerages, such as UBS and Morgan Stanley, for the bank in the next few months.
1. Bunch of Contradictions in Q4FY25 Business Update
IndusInd Bank’s Q4 business update was a mixed bag of performances. While there were some parameters which indicated growth, others indicated stress, especially in the corporate banking division.
Net Advances and Deposits
In Q4FY25, the bank achieved a year-on-year (YoY) growth of 1.4% in net advances, which reflects some improvement in the bank’s loan book. Yet sequentially, net advances decreased by 5.2%, landing at ₹3.47 lakh crore. The slowdown in sequential growth made the question mark the ability of the bank to continue its growth pace in the short term.
Conversely, total deposits increased 6.8% YoY and rose marginally by 0.4% on a QoQ basis to ₹4.11 lakh crore. This consistent growth in deposits is beneficial to the bank, but the growth in deposits was not sufficient to compensate for the fall in advances.
a) CASA Ratio and Retail Deposits
IndusInd Bank’s Current Account Savings Account (CASA) ratio has been a point of concern. It dropped to 32.8% in Q4FY25 from 37.9% in the same quarter last year and from 34.9% in the previous quarter. CASA is a crucial metric as it represents low-cost deposits that contribute to the bank’s net interest margin (NIM). A declining CASA ratio could lead to higher cost of funds and, subsequently, pressure on the bank’s margins.
The small business customer deposits and retail deposits were at ₹1.85 lakh crore, marginally down from the ₹1.88 lakh crore of the last quarter. This marginal fall is also significant since it indicates that the bank may be experiencing difficulties in retaining and attracting deposits in a competitive scenario.
b) Corporate Banking Stress
IndusInd Bank’s corporate banking business evidenced stress. Net advances from this segment dipped by 4.9% YoY and 15.1% QoQ, an indication of softening demand from corporate borrowers. This is worrying, given that corporate banking forms a considerable chunk of the loan book of a bank. The decline in corporate advances may signal a decline in business activity or a conservative strategy by corporate borrowers in view of economic uncertainties.
c) Healthy Consumer Banking Performance
In comparison to the corporate banking sector, consumer banking performed comparably well. Net advances in the segment improved by 6.3% YoY and 3.4% sequentially. This is a welcome development for the bank, as the consumer banking industry has been a major growth driver for most banks over the past few years. The expansion in this segment can be ascribed to the bank’s concentration on retail loans, i.e., personal loans, home loans, and car loans, which have seen robust demand.
d) Liquidity Coverage Ratio (LCR)
The daily average Liquidity Coverage Ratio (LCR) of the bank during the quarter was 118.4%, whereas LCR as on March 31, 2025, was 136.2%. LCR is a significant ratio that helps ensure the bank possesses sufficient liquidity to cover its short-term commitments. The higher the LCR, the better it is regarded as an indicator of financial soundness, and that is a good thing for IndusInd Bank. Yet, liquidity will not be able to compensate for difficulties in other aspects of the business.
2. Market Reaction: A Dramatic Fall in Stock Price
While there are positives of IndusInd Bank’s Q4 report, the stock fell sharply by more than 27% in the last month. On April 7, the bank’s shares extended their fall, responding negatively to the announcement of the mixed quarterly results and concerns expressed by analysts regarding the bank’s future.
On April 7, at 9:21 am, IndusInd Bank shares were quoted at ₹1,769.95 on the NSE, which indicates a downfall in the sentiment of the market. The sudden dip in the price of stocks is due to a number of reasons, such as:
- Continuous Investigation into Derivatives Portfolio: IndusInd Bank has been under the scanner for discrepancies pertaining to its derivatives portfolio. The continuous investigation has caused concern among investors regarding the bank’s governance processes and potential exposure to regulatory risks. This uncertainty has had a significant impact on the stock, leading to the recent downfall.
- Weak Performance of Corporate Banking: The collapse in corporate advances and general weakness in the corporate banking segment have raised issues with the bank’s capabilities to sustain growth in its core business. Due to the criticality of the corporate segment to IndusInd Bank’s overall performance, any hint of stress in this segment is followed with keen interest by investors.
- Decreasing CASA Ratio: The decrease in the CASA ratio is a worrying trend for IndusInd Bank since it indicates increasing cost of funds. Investors are concerned about how this would affect the profitability of the bank as well as its long-term growth potential.
- FII Sell-off and Uncertainty Over CEO Appointment: Foreign Institutional Investors (FII) have lowered their holding in IndusInd Bank considerably, which has created a lack of faith among foreign investors. Uncertainty over the appointment of a new Chief Executive Officer (CEO) has also contributed to the nervousness in the market. The new CEO appointment is a critical event for any company, and the uncertainty over this leadership change has also added to the stock’s downturn.
3. Analyst Sentiments and Downgrades
Since the Q4 update was released, several brokerage houses have changed their view on IndusInd Bank. Most prominently, UBS downgraded the stock from ‘neutral’ to ‘sell’ and reduced its target price by 22%, from ₹770 to ₹600. The brokerage pointed out several risks, including subdued deposit flows, the uncertain appointment of the CEO, and concerns over the investigation into the derivatives portfolio. UBS also downgraded its loan growth targets and cut its Net Interest Margin (NIM) forecasts for FY26 and FY27.
Morgan Stanley, however, has been more cautious in its call, providing an ‘equal-weight’ rating with a target price of ₹1,105 a share. While Morgan Stanley also noted the bank’s poor Q4 performance, it pointed to the necessity of clearer margin trends and asset quality, especially from the microfinance institution (MFI) space. The firm was worried about the bank losing market share and recording sluggish growth in both deposits and loans.
4. The Way Forward for IndusInd Bank
The prospects for IndusInd Bank do not look optimistic in the short run, considering that the bank is confronted by a number of challenges such as poor growth within the corporate banking business, weak CASA ratio, and frequent regulatory attention. Nevertheless, consumer banking performance from the bank has been strong and the retail lending book remains to be a chief growth driver.
In the future, investors will be watching closely for the following:
- CEO Appointment: The new CEO appointment is likely to be a turning point for IndusInd Bank. The vision and strategy of the new CEO will be instrumental in defining the direction of the bank in the next few years. Delay in the appointment or uncertainty regarding the selection of the CEO might have a dampening effect on investor sentiment.
- Corporate Banking Performance: The bank’s performance in the corporate banking sector will be the key to its overall growth. A turnaround in this sector will be able to counteract the difficulties encountered in other parts of the business.
- Regulatory Developments: The current investigation into the derivatives portfolio and conclusions from the report of the external auditor will be important to assess the possible implications on the health of the bank’s finances. Any adverse developments in this direction could further act as a dampener for the stock.
Market Conditions: The general market conditions, such as the condition of the Indian economy, interest rate fluctuations, and inflation, will also be important in deciding the performance of the bank. Investors will be seeking indications of stability in the macroeconomic environment prior to making any further investment decisions.
Conclusion
IndusInd Bank’s dual Q4 update and the resultant fall in its share price have left investors and analysts worried. Though the consumer banking business of the bank is promising, corporate banking segment weaknesses, falling CASA ratio, and constant regulatory heat have made investors wary of the bank’s future outlook. The stock has been downgraded by analysts and there are also concerns regarding leadership handover, and hence the near-term outlook is guarded.
Still, IndusInd Bank’s resilient retail banking operations, enhanced liquidity, and likely turnaround in the corporate segment might provide hope of long-term recovery. Investors will need to watch closely for forthcoming events, such as the CEO appointment, regulatory decisions, and market conditions, to assess how well the bank will be able to ride out these challenges and restore investor faith.
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