Indusind Bank Q3 FY26 Earnings Conference Call | Concall.in

Good evening and thank you everyone for joining us today. I'm joined here by the senior management team of IndusInd Bank. I'll start with a quick overview on the macro environment and then go into bank-specific developments. The global environment remains uncertain with shifting trade policies and a possible tilt towards a multipolar world order. Amidst this backdrop, the Indian economy continues to demonstrate resilience. Demand indicators improved during the quarter building on the festival season uptick, GST benefits and better supply conditions. High frequency data indicates that overall activity stayed firm post the festival season though a few indicators softened on a higher base. Inflation outlook remains benign and policy support is expected to continue towards growth acceleration. Bank credit growth improved across key sectors during this quarter and the momentum is expected to continue supported by policy measures and constructive macro environment. We will now move to the key highlights of Q3 FY26 and then cover business-specific progress and financial performance. We continued our approach of rightsizing the balance sheet by shedding inefficient assets and liabilities and allocating growth capital towards areas of focus. Our average deposits de-grew by 1% driven entirely by the reduction in bulk deposits. The average retail deposits were stable quarter on quarter and grew albeit modestly on a period end basis. As a consequence, share of retail deposits inched up from 47.2% to 47.5% from 47% quarter on quarter. On the asset side, disbursements were robust in the vehicle finance retail and granular corporate book. However, our average loan book de-grew 2% driven by continued rundown in micro finance loans and risk-reward-driven calibration in the corporate book. Slippages during the quarter have been rangebound in all businesses except micro finance loans. Slippages in micro finance loans remained elevated as last quarter. We have implemented stringent underwriting norms earlier this year. These norms have shown effect as incremental stress formation is reducing consistently. We continue to work towards reduction in outstanding stress book as is evident in quarter on quarter reduction in net NPA, net security receipts and the restructured book. We have made considerable progress on streamlining of the organization structure and identifying the right talent to drive the bank's future growth. Since the last analyst call, we have onboarded a new head of wholesale bank, chief human resources officer, chief data officer, a new CEO for BIL, head of MSME business and head digital among others. There are a few more positions expected to be announced in this quarter. With this, the top leadership team will largely be in place and I am confident that this strengthened leadership team with diverse experience is well positioned to deliver on our strategic agenda. We are also pleased to welcome Mr. Arijit Basu as our new chairman bringing over four decades of leadership experience in the Indian banking industry. I also want to thank Mr. Sunil Mehta upon completion of his tenure as chairman for his steadfast leadership and unwavering support through challenging times. The financial outcome for Q3: our pre-provision operating profit at 2,270 crores grew 11% quarter on quarter supported by improved net revenues and disciplined cost management. Provisions remained high given elevated flows in the micro finance business and write off of accumulated NPAs. As a result, profit after tax for the quarter was at 128 crores. The capital adequacy remains healthy at CET1 of 15.74% and CR of 16.94%. I will now take you through the highlights of individual businesses: vehicle finance. The vehicle industry and consequently our vehicle finance business saw robust momentum during the quarter on the back of GST changes announced by the government. Our vehicle disbursements at 12,900 crores increased by 26% quarter on quarter. As a result, the vehicle finance loan book growth inched up by 2% quarter on quarter compared to the muted growth over the last couple of quarters. The loan book now stands at 98,196 crores. We saw broad-based pickup in disbursements across vehicle categories led by MHCVs, tractors and passenger vehicles. The gross and net slippages have shown improvement on a year on year basis for all three quarters of this year. We expect the trend to continue in Q4 as well resulting in a full year FY26 asset quality outcome which is expected to be better than FY25. Looking ahead, we remain optimistic about vehicle demand supported by fiscal and monetary measures already announced. Any further consumption supportive or tax relief measures in the upcoming union budget will bolster this outlook. Rural and priority banking: I believe rural banking presents a large underserved opportunity and expanding our presence here remains a key strategic opportunity. Scaling products beyond micro finance allows us to address this opportunity in a more diversified and granular manner while also supporting our PSL requirements. The Bharat Financial Inclusion Limited, BIL, is now led by Tapasratna Choudhury as MD and CEO. Tapasratna is a seasoned leader with over 26 years of experience in the micro finance, retail and rural lending businesses. As mentioned earlier, the bank has tightened the asset quality norms for micro finance loans earlier this year. We have seen an improvement in early stress indicators. We continue to monitor the collection efficiency and aim to move towards normalization in the coming months. 31 to 90 days past due was 2.4% in December 25 versus 3.2% in September 25. We have also gradually started increasing our microloan disbursements within our revised underwriting framework. Our microloan disbursements were 3,598 crores during the quarter. However, given the contractual rundowns of over 6,300 crores during the quarter, our microloan business de-grew by 6,669 crores. Disbursements during the quarter were directed towards high vintage well-performing customers and centers and is currently under the process of being covered under the CGFMU credit guarantee which will take the CGFMU coverage to around 38% of the standard book as of December 25. While early bucket stress indicators have shown improvements, our focus continues to be on a sustainable normalization rather than near-term book growth. With reinforced underwriting, tighter controls and new leadership at BIL, we are committed to growing this portfolio in a calibrated and risk-aware manner. In terms of our other rural products, we have shown a few of our rural focused product portfolios which have reached certain scale in our investor presentation. Our aim is to build a comprehensive suite of products tailored to the rural customer needs. Within this, we continue to scale our merchant loan book which now stands at 7,338 crores growing 16% year on year spread over 579,000 merchant borrowers. Our affordable housing loan book at 2,692 crores grew 25% year on year while the Kisan credit and other rural loans at 4,267 crores remain steady quarter on quarter. Our consumer banking assets: these are traditional retail assets which will be the key growth driver as we build universal banking franchise. Our home loan book continues to see strong momentum with outstanding of 6,114 crores growing 94% year on year and 10% quarter on quarter. Personal loans at 10,598 crores grew 12% year on year and the credit card loan book at 10,264 crores de-grew by 6% year on year. As we remain watchful of asset quality trends, credit card spends for the quarter were at 16,318 crores. We rationalized some of our spends which were not efficient for the bank on an overall profitability basis. The retail spends remain robust growing 5% quarter on quarter. Overall consumer banking assets at 31,057 crores grew 18% year on year. SME banking: as you all know India has a large and vibrant SME segment. The bank has a relatively small presence in this space. I believe this provides us a large opportunity to diversify our loan book and provide the next growth booster. We have strengthened our team in this space with Ramaswamy Gopalakrishnan joining us as head commercial banking and middle market at the bank. Ramaswamy is a veteran in this segment with over two decades of experience across leading foreign and private sector banks. In this role, Ramaswamy will spearhead the bank's strategy and businesses in SME and mid-market segments with a strong focus on driving growth, deepening client relationships and delivering innovative solutions to these critical sectors. We are reorganizing our structure to serve the segment with appropriate distribution. The portfolio currently stands at 43,957 crores and there is robust scope for us to grow in the years to come. As we disclosed earlier, Ganesh Sankaran has joined us as head wholesale banking at IndusInd. Ganesh brings over three decades of experience across wholesale, retail, credit and SME, playing a pivotal role in building businesses, driving large scale business transformations and delivering consistent performance. We have revised our coverage model to ensure optimal management and customer responsiveness across client segments, strengthening our position as a universal franchise and staying aligned with our strategic business objectives. Our strategy for the Wholesale Bank Group specifically anchors around continued granularization of the franchise, expanding growth frontiers, building sustainable and cost-effective liability franchise, and a future ready organization for superior client experience. We have started with rationalizing exposures where we don't see meaningful risk-adjusted returns even a few quarters down the road. As a consequence, our wholesale banking loans de-grew. The proportion of A and above rated customers and the weighted average rating of the wholesale bank portfolio were at 82% and 2.54 respectively. The asset quality remains healthy with slippages remaining within our expected range. The gems and jewelry business maintains robust collections with no SMA 1 or 2 customers. Now coming to liabilities: the quantity and quality of deposits is my foremost priority and a bulk of my attention and resources are allocated towards this. We have already made considerable progress in terms of streamlining organizational structures, strengthening the branch as a focal point, prioritizing digital delivery and enabling frontline relationship managers. We integrated affluent pioneer branch operations and the entire NRI segments into branch banking creating a unified retail banking model across our deposit branches that enhances scale, unlocks synergies and shifts us towards a more customer-centric branch-led engagement framework for a high quality and consistent service delivery. We have multiple variants of branches through vehicle, micro finance and mainstream branches with restricted bouquet of offerings available in these branches. We are now consolidating multiple formats and making them universal branches in suitable locations. This should drive synergy for both assets and liabilities in leveraging our existing distribution. We have also created a new senior leadership position as chief data officer to effectively and efficiently use data analytics in all the decisions that we make. Balaji Narayan Murthy in this role will be responsible to drive the bank's data strategy, business intelligence, advanced analytics, AI initiatives and data engineering capabilities. Our digital banking app Indie now has monthly active users of over 2.7 million customers conducting 4.3 million app-led transactions in Q3 FY26. Our recently launched Indie for Business has seen monthly active user base increase by 220,000 MSME customers. Our focused efforts on enhancing efficiency in customer acquisition has started showing early results in terms of improving new-to-bank growth as well as productivity across channels. We should see this translating into revival in retail deposits in the coming quarters. Cost of deposits for the quarter at 6.09% improved by 14 basis points quarter on quarter largely driven by term deposit repricing. We reduced our dependence on bulk resources with CDs down 3% quarter on quarter and borrowings at 39,242 crores down 13% quarter on quarter. We have maintained a healthy liquidity position during the quarter with average LCR at 122% and average surplus liquidity at 43,000 crores. I will now hand over to Viral, our CFO, to take you through the financial performance.

Thank you Viral. To summarize, this quarter reflects progress on balance sheet strengthening, gradual pickup in core retail businesses, disciplined liability optimization and progress on building a robust leadership team and organizational structure. Looking ahead, we are working on a three-year strategy anchored around PACE. Protect the endowments, accelerate on key priorities, customer centricity, and execution excellence. Protect the endowments: I believe the bank has unique strengths in terms of vehicle finance, deep rural presence complemented with a robust corporate franchise. We aim to preserve this and not make changes for the sake of making changes. We will bolster these and evolve as per the operating environment and they will remain core to the future of this bank. Accelerate key priorities: These are areas where we need to improve either of scale, efficiency or quality of business. We do this inter alia including building a more granular low-cost deposit base, scaling our SME and mid-market franchise and improving stakeholder perceptions. Customer centricity: We are keeping the customer at the center of all our actions by unifying engagement across one IndusInd, driving digital adoption and elevating service quality. The ever evolving technology will play a big role in bridging if not surpassing the gap with peers. Execution excellence: I believe execution rigor should differentiate the outcomes in an industry which is regulated and largely commoditized. We are working towards building a strong execution-oriented culture, sharper performance accountability, tighter cost management and efficient product delivery. With this we are now open to Q&A. I must also inform you that we have revamped our investor presentation providing much more disclosures. We will continue to refine these as we progress and any feedback on this is most welcome. Thank you and over to all of you.

Yes, I can hear you. Kunal.

See, I think, Kunal, the aim is to bring down the stress book through write offs etc. But I think we need to keep the interest of all our stakeholders in mind. Our intent is to bring down net NPA well below 1%, in the 60-70 basis points vicinity over a period of time.

As I mentioned in the last quarter as well, our intent is to grow in line with market in the year FY26-27 and be in the vicinity of 1% ROA as we get to the back end of that year.

That's correct.

Thank you.

We have mentioned in the opening remark the SMA 1 and 30 to 90 DPD is 2.4% against 3.2% last quarter.

I think, as I mentioned in the last quarter as well, the micro finance business is a very critical business for this bank for multiple reasons. It is a business that if run well is a very profitable one. And perhaps more important is that as the industry continues to grow, I do believe that meeting PSL and particularly agri and within that the small and marginal farmer is going to become increasingly difficult and here is an engine that meets that requirement for us. So both from a profitability perspective and the fact that we are able to start to grow other products within this space which is our Bharat superstore business which I spoke about, and the fact that this is going to meet our critical PSL requirements makes this a very important business for us. We also recognize the fact that it is cyclical in nature and therefore as I said in my opening remarks, we are using the credit guarantee schemes and the aim is to take that coverage to 100% thereby eliminating the tail risk on the micro finance business. So if we are able to do that and manage the proportionality of the business somewhere between 7 to 8% of our asset side, I do believe that we can build a more predictable and profitable micro finance business going forward.

I don't want to guide quarter on quarter, but I stand by what I said last quarter that our intent is to grow in line with the industry in FY26-27.

Thank you.

So let me take question two and question three first. On the PACE strategy, we will obviously share more details in the months to come. As far as capital is concerned, why do I need capital at this stage? I would first stay focused on getting growth impulses back, particularly on the liability side, because we have enough engines of growth on the asset side including some of the new engines like SME. That will take us deep into FY26-27. Growth capital is not something that we require, and even if we do consume at a relatively lower ROE or ROA, I think we have more than sufficient for at least the next 12 to 18 months. I'll let Viral answer the net NPA question and the ECL impact.

We will evaluate every quarter depending on how the revenues are pacing out, how the asset quality pans out in some of the large businesses. So we don't want to guide a specific target. Let's see how each quarter goes and then we will update you.

I think the way I'm thinking about this is basically year 1 which is FY26-27 grow in line with market, FY27-28 start to gain market share, and FY28-29 start to dominate in some of the focus areas that we have built out.

I don't have a number at hand. For example, some of our large businesses like our vehicle finance business, we have about a 7.5% market share, our intent is to take that back to 9% as we go forward. Similarly, we will continue to gain market share on our micro finance business. As we accelerate our SME businesses in the short to medium term, I'm fairly certain that we will be able to gain market share. But I think the key to all this is to be able to improve both the quality and quantity on the liability side. As we all know, there is a mad scramble for deposits in the banking system. So I am actually not very concerned about being able to gain market share on the asset side. I think the challenge for us will certainly be to be able to improve the quality and quantity of liabilities as we go forward.

It is.

That's a fair ask, which is why we decided to seed the idea of PACE with all of you. We will share more details which will give you color on the possibility of execution and the execution rigor that is going into all of that in due course.

On the ROA question, what I've been saying is that this is a three-year journey; year one is really to start to grow in line with market with 1% ROA, and you can do some numbers on your own given the commentary that you have heard from us. The vehicle finance and micro finance business will continue to be a critical component for us, i.e., higher yielding assets. We will add the SME business and to some degree defocus on the very large corporate business. There is space for us to grow our entire agri franchise including gold loans which will help us meet some of our PSL requirements. Given where we are on cost of funds and utilization including renewed focus on current accounts should benefit us from improved cost of funds in the medium term. We are already working on a fairly elaborate cost takeout. If you look at cost to assets, currently there is a bit of a denominator effect because assets are not growing, but cost to assets continues to be elevated. So as I look across the ROA tree, there are opportunities to improve pretty much on each of these lines: on NIM through benefits on cost of funds, fee incomes both on retail and corporate, some cost takeouts, and be able to reduce credit costs as we go forward. So in that sense, you can clearly see that there are opportunities. The question is how long will it take to execute all this? I think it's a three-year journey at least. On the vehicle finance slippage, let me ask Shiram who heads that business to take this.

On the Bharat, not obviously agri. So it won't be FMF, but it'll still be general category; MSME it will be under MSME, it is PSL.

SMF 85.

It's not an either or. Why don't you finish your question?

As we've explained over the last couple of quarters, we have seen degrowth on the MFI book over the last two quarters including this quarter. Having said that, there has been a significant increase in disbursements in this quarter really from the middle of October. So to that extent, the full benefit of disbursements will come through in Q4 when disbursements will be higher than the repayments we receive and the book will start to grow from Q4 onwards. So the degrowth that you have seen we should be able to recoup as we get into FY26-27, helping us fix the proportionality and meeting a significant component of our requirements for agri and SMF.

You know, let's see how each quarter goes. As we have been saying, it's not going to be a given that ROA improvement will happen every quarter without doing everything. Bulk of the improvement will come from credit costs. This quarter Q3 credit cost is 2.6%. The bank as you know has operated at 130-140 basis points when micro finance was at around 10-11%. So with micro finance at a lower share, obviously the business has to operate at a much lower credit cost. So there is significant scope for improvement. Plus the margins that we are delivering today, the fees that we are delivering today, they are lower than what their potential is. So there is scope across the board, but giving an exact bridge right now is too early. Every week things are changing, every quarter things are changing, so let's take one quarter at a time and that's why we are not giving quarter specific guidance. Let's reach 1% first. Some of you have actually asked us the other way around, saying that 1% is too low for a bank of your loan mix, so let's take one step at a time and then revisit.

I think for a banking business, growth particularly on the corporate side which is not profitable is very easy to do. So the composition of the growth is as important and what part of that growth we are sacrificing is as important. We are a relatively small player in the larger banking industry, so I don't think it's an either or in a very simplistic sense. If push comes to shove, yes, there are opportunities for us to shed growth without impacting PPOP. So stuff like that we will certainly do if required.

Thank you so much.

See, the RBI discussions with the bank are confidential in nature. We won't be in a position to comment on it till the discussions are conclusive. As and when required, we will make whatever announcements are there. So difficult to comment on it. We will give any information as and when it is appropriate.

We don't disclose company level exposure. We had disclosed this specifically in stock exchange two years back when there were some market news. Since then the exposure has come down a little bit.

I thank each one of you for your interest in IndusInd Bank and for being on this call. I take this opportunity to wish each one of you a very happy new year as well. Thank you once again.