IndusInd Bank Shares Rebound 6% After Sharp Decline, But Analysts Remain Cautious

IndusInd Bank’s shares have seen a notable recovery in recent trading sessions, bouncing back by 6% to ₹983 from a one-year low of ₹928. This rebound follows a prolonged period of selling pressure that saw the stock lose 37.2% of its value between mid-September and late December, driven largely by poor performance in Q2FY25. This led to multiple target cuts by brokerage firms and marked one of the bank’s most challenging periods, culminating in a nearly 40% drop for CY24 — its worst annual performance since its listing in 1998.

Despite this recent recovery, analysts remain cautious about further upside, particularly following the bank’s Q3FY25 business update, which fell short of expectations.

Disappointing Performance Continues

In its recent report, Incred Equities highlighted that IndusInd Bank’s performance in Q3FY25 was again below market expectations, with a notable surprise on the deposit front. The bank reported a 1% QoQ decline in total deposits, though it showed an 11% YoY increase. Advances grew by 2.8% QoQ, but this led to a sharp rise in the credit-deposit (CD) ratio to 89.6% from 86.5% in the previous quarter.

Additionally, the bank’s CASA (current account, savings account) ratio declined to 34.9%, down from 35.9% in the previous quarter and 38.5% last year. This decline in both total and CASA deposits signals a struggle in building a strong deposit franchise. The report also noted that the bank’s acquisition of Bharat Financial (BHAFIN) was expected to strengthen its rural deposit base, but this has yet to materialize.

Struggles in Retail Lending and Auto Finance

IndusInd Bank has also faced challenges in its lending business, particularly in retail lending. The bank’s microfinance segment (BHAFIN) is dealing with macroeconomic headwinds, while the auto finance business is suffering due to weaker demand in the automotive sector. The non-vehicle retail loan book, largely consisting of personal loans and credit cards, is also struggling as these products have lost favor in the market.

While the bank’s margin is expected to remain stable in Q3FY25, any potential improvement could be offset by the rise in secured products, such as loans for vehicles, that have been underperforming. The asset quality trend, particularly in the MFI and vehicle finance portfolios, is a critical factor that analysts are monitoring closely.

Cautious Outlook and Target Price

Despite the ongoing challenges, Incred Equities maintained a ‘hold’ rating on IndusInd Bank’s stock with a target price of ₹1,350 per share, implying a potential upside of 47.5% from its current price. However, given the bank’s struggles in key areas like deposit growth and retail lending, the market may remain cautious in the near term.

Investors should be aware that the views expressed by analysts are individual recommendations, and market conditions could shift rapidly depending on the bank’s performance in the coming quarters.

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