IndusInd Bank Q3FY26: Profit Slumps Nearly 90% YoY Despite Sequential Recovery
IndusInd Bank’s December quarter Q3FY26 performance presents a conflicting picture of revival and lingering stress. While the private sector lender returned to profitability after a loss in the previous quarter, its earnings saw a sharp year-on-year decline, reflecting the lingering impact of asset quality pressures, elevated provisions, and a shrinking balance sheet. The latest figures underscore a bank in the transformation, one that is stabilising operations, shoring up risk controls and reworking its leadership at the same time it faces microfinance stress and governance-related headwinds.
Asset Quality at IndusInd Bank Stabilises, Microfinance Stress Continues
On a standalone basis, the bank had posted a net loss of ₹437–445 crore in the September quarter. This phased recovery was significantly supported by provision ease and stable operating performance. However, profitability was down significantly on a year-on-year basis by almost 90% against the profit of more than ₹1,400 crore in the same quarter of the previous fiscal year.
The steep drop underscores the effect of high credit costs and balance sheet repositioning over the last year. While the return to black spells some normalisation after a rough patch, the profits indicate that the recovery remains tentative and unequal from business line to business line.
Mixed Net Interest Income Growth
Net interest income (NII), a key measure of core lending performance, was at ₹4,562 crore in the December quarter. This was a slight uplift of 3% quarter on quarter, and was due to better margins and a more efficient operation. But NII fell 13% on a YoY basis, reflecting lower loan growth, refinancing resulting from cautious disbursements and pressure on interest-earning assets.
The year-on-year dip in NII is an indication that, although margins have improved, the growth of advances has been limited due to deliberate shrinking of unprofitable markets and underwriting standards.
Margins Upside as Balance Sheet is Rationalised
Its net interest margin (NIM) rose to 3.52% in Q3FY26 from 3.32% in the preceding quarter. Management suggested the good news was a result of greater lending discipline or focus on profitable lending and managing assets for yield in a lower-for-longer rate world.
Addressing the issue of loans, Managing Director and CEO Rajiv Anand said that the bank has again continued with its stance on optimising its balance sheet by shedding unprofitable loans and deposits, as well as maintaining caution on microfinance disbursals. This switch to strategic pricing has cushioned margins, even as overall business volumes fell.
Operating Performance Remains Steady
Its pro-prevision operating profit (PPOP) for the December quarter was ₹2,270 crore, up 11% from the previous quarter but well short of the ₹3,601 crore in the same period last year. The stabilisation of operating performance is a reflection that the bank’s core franchise remains intact against external headwind and internal reforms.
Total costs for the quarter fell to ₹10,810 crore from ₹11,555 crore in the year-ago period, suggesting better cost management and operational efficiency. Declining costs, along with steady operating income, supported the rise in provisions.
Asset Quality Stabilises, Microfinance Stress Continues
Asset quality edged up slightly from the previous quarter. Gross non-performing assets (GNPA) as a percentage of gross advances were broadly stable at 3.56 per cent, and net NPAs were flat at 1.04 per cent, on a moving annual basis.
But there is a year-on-year dip in asset quality. While GNPA increased from 2.25% a year ago, net NPA was higher at 0.68%, indicating stress in some portfolios, particularly microfinance. Management commented that within core operating businesses, asset quality trends have remained consistent, with microfinance being the exception, where they are seeing some early industry-wide signs of improvement.
Provisions Decline Sequentially, Coverage Improves
Management too is confident that Covid-related stress may not balloon Q3FY26 provisions and contingencies were at around ₹2,090—2,096 crore, almost 20% lower compared to the previous quarter but about 20% higher y-o-y. The lower provisions were a key reason for the move back into profit, even though there had been heavy provisioning on microloans in the September quarter.
The provision coverage ratio for the bank strengthened to 71.5% as of December 31, 2025, representing stronger cushions against potential asset quality shocks. The bank’s total loan-specific provisions amounted to ₹10,027 crore (3.16% of the loan book), indicative of a conservative approach towards credit risk.
Shrinking Loan Book and Deposits
Balance sheet shrinkage of IndusInd Bank continued to be visible in the December quarter. Its total advances fell 13% on a yearly basis to ₹3.17 lakh crore, while deposits declined 3.8% to ₹3.94 lakh crore. CASA deposits were ₹1.19 lakh crore, constituting nearly 30% of the aggregate deposits.
The squeeze is a manifestation of the bank’s disciplined growth strategy, which prioritises asset quality and profitability rather than volume. While this has supported margin and risk stabilisation, it has hamstrung income growth and market share.
Leadership Transition and Governance Reset
The December quarter results follow a big change in leadership at IndusInd Bank. Chairman Sunil Mehta is scheduled to retire at the end of his tenure, in January, and former State Bank of India Managing Director, Arijit Basu, has been appointed in his place. Worries about governance and accounting lapses had pushed out former CEO Sumant Kathpalia and Deputy CEO Arun Khurana over the past year.
Earlier this year, the bank had its biggest loss ever, of more than ₹2,100 crore in the March quarter, and there has been a lot of volatility, leading to the oldest banker at IndusInd being replaced.
Market Reaction Reflects Cautious Optimism
Shares of IndusInd Bank fell about 0.5–1% to close at around ₹893–898 on BSE on January 23, as investors weighed the mixed performance. Even as the return to black provided some much-needed respite, a steep year-on-year fall in profits, a contracting loan book, and higher NPAs play spoilsport.
Future: Scaled Growth Instead of Rapid Expansion
Going forward, management is still confident in the resilience of the domestic economy and plans to take part in the recovery of growth incrementally. With adequate capital, surplus liquidity and a depleting stressed asset pool, IndusInd Bank seems to be concentrating on rebuilding its franchise at a slower pace rather than running after exponential growth.
The third quarter of FY26 is an important step towards stabilisation, and we believe sustained recovery will be contingent upon further improvement in asset quality, loan growth, and profitability.
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