IndusInd Bank: A crucial crossroads amid leadership continuity and financial headwinds

The sharp fall came in the wake of two major developments—the Reserve Bank of India (RBI) approving Sumant Kathpalia’s reappointment as CEO for just one more year instead of the three-year tenure sought by the bank, and reports that Nippon Life Insurance Co.’s India unit, Reliance Nippon Life Insurance, is considering acquiring a minority stake in the lender. 

Investors appeared to be reacting with uncertainty, as the regulatory decision hinted at lingering governance concerns, while the potential stake sale raised questions about the bank’s capital requirements and long-term strategy.

Once celebrated for its aggressive growth strategies and robust financial performance, IndusInd Bank now faces a critical test of resilience. It must address pressing concerns over asset quality, declining margins, and a falling stock price, all while balancing growth ambitions with the need for stability.

With investor confidence shaken and regulatory overhangs casting uncertainty, the bank’s next moves will determine whether it can emerge stronger—or continue to struggle under financial and operational stress.

Kathpalia’s leadership

Sumant Kathpalia, with over 37 years of banking experience, has led IndusInd Bank since March 2020, overseeing its digital expansion and corporate loan growth. However, the RBI’s decision to grant only a one-year extension instead of the three-year term requested signals ongoing regulatory caution over governance and stability.

This is not the first time the RBI has limited his tenure. In 2023, a similar request for a three-year extension resulted in just two years. Such decisions suggest a watchful approach from regulators regarding the bank’s strategic execution. As Kathpalia continues at the helm, his focus on asset quality improvement and investor confidence restoration will be crucial.

Stock market woes

IndusInd Bank’s stock has been on a prolonged decline, falling over 34% in the last six months and significantly underperforming its peers in the banking sector. The downward trend continued on March 7, with shares closing at ₹936.80, just a few points away from its 52-week low of ₹923.40 recorded in January 2025.

Market analysts point to a combination of factors driving the stock’s slide. Weak quarterly results, rising NPAs, and regulatory scrutiny have dented investor sentiment. Additionally, a recent bulk sale of 50.8 lakh shares by Integrated Core Strategies (Asia) Pte further pressured the stock. The decline has led to a divergence in investor opinion—while some believe the stock presents a buying opportunity at lower levels, others recommend exiting due to near-term uncertainties.

Also read: Ghost of microfinance comes back to haunt IndusInd Bank

Technical indicators suggest a bearish outlook. The stock is trading below all major exponential moving averages (EMAs), and its Relative Strength Index (RSI) is hovering near 32.84, signalling oversold territory. Analysts caution that if the stock breaches the ₹910–900 support zone, it could face further downside pressure. Conversely, a breakout above ₹1,000–1,050 could trigger some recovery.

A deteriorating bottom line

The bank’s Q3 FY25 financial results have intensified concerns. IndusInd reported a 39% year-on-year decline in net profit, with earnings dropping to ₹1,402 crore from ₹2,301 crore a year earlier. The sharp fall in profitability was driven by higher provisions and lower net interest income (NII).

Gross NPAs rose to 2.25% of total advances, compared to 2.11% in the previous quarter. The bank’s microfinance loan book, a major contributor to its financial stress, saw NPAs climb to ₹2,432 crore. Net NPAs also inched up, reflecting deteriorating asset quality.

NII, a key measure of a bank’s core earnings, declined by 1.3% year-on-year, reaching ₹5,228 crore. Net Interest Margins (NIMs) contracted to 3.93%, down from 4.08% in the previous quarter, as the bank struggled with higher funding costs and a shift in its loan mix.

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Brokerages have responded by lowering their targets on IndusInd. Goldman Sachs downgraded the stock to ‘Neutral,’ while ICICI Securities and Motilal Oswal revised their price targets downward, citing concerns over asset quality and slower-than-expected growth.

Nippon strategic bet

Amidst its financial challenges, IndusInd Bank has attracted interest from Nippon Life Insurance Co.’s India unit, Reliance Nippon Life Insurance, is considering acquiring a minority stake of up to 9.9%. If the deal materializes, it could provide the bank with a much-needed capital infusion and pave the way for a deeper bancassurance partnership.

The potential investment is particularly noteworthy as IndusInd’s parent company, IndusInd International Holdings Ltd (IIHL), has been restructuring its financial services portfolio. IIHL recently acquired Reliance Capital, a move that aligns with its broader ambitions in the financial services sector. A tie-up with Nippon Life could open new avenues for cross-selling financial products through IndusInd’s extensive branch network.

While the deal is still in the early stages, its success could boost investor sentiment and provide stability in the face of market volatility.

Regulatory and compliance hurdles

Adding to IndusInd Bank’s woes, regulatory concerns have emerged. The RBI recently imposed a penalty of ₹27.3 lakh for non-compliance with deposit-related norms. The bank has also received a ₹21.62 crore GST demand notice, which it may challenge in court.

Regulatory interventions, while not uncommon in the banking sector, raise red flags about operational discipline. The RBI’s repeated decisions to extend Kathpalia’s tenure in short increments further suggest that the bank remains under scrutiny.

Growth vs. stability

IndusInd Bank faces a delicate balancing act. While its corporate loan book has grown 16.1% year-on-year and vehicle financing remains strong, stress in the microfinance segment continues to weigh heavily. The bank has been diversifying its portfolio to reduce reliance on unsecured loans, but the transition will take time.

One of the key focus areas for IndusInd Bank is stabilizing its microfinance NPAs, which have been a major source of stress on its financial health. Ensuring recovery in this segment will be critical for restoring investor confidence and mitigating future losses.

Another pressing issue is deposit mobilization. The bank’s declining CASA ratio suggests difficulties in attracting low-cost deposits, which are essential for maintaining profitability and improving its funding mix. Addressing this concern will require a strategic push toward strengthening its retail deposit base.

Operational efficiency is also a major area of concern. Rising costs and higher provisions have put pressure on the bank’s margins. Streamlining expenses, improving productivity, and enhancing digital banking services could be crucial in managing costs effectively.

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Lastly, regulatory clarity remains a significant factor. With governance concerns under RBI’s scrutiny, the bank must focus on strengthening its compliance framework and addressing any gaps that may hinder the approval of longer leadership tenures or impact investor sentiment.

The road ahead

IndusInd Bank stands at a crossroads. While challenges remain, opportunities for recovery exist if strategic adjustments are made swiftly. The coming quarters will determine whether the bank can regain its growth momentum or remain mired in financial struggles.

As Sumant Kathpalia embarks on another year as CEO, his ability to navigate these complexities will be under intense scrutiny. Investors and regulators alike will be watching closely to see if IndusInd Bank can turn its fortunes around or continue to grapple with uncertainty in India’s competitive banking landscape.

About the author: Suchitra Mandal is a proficient financial writer with expertise in delivering well-researched insights and detailed analyses of companies’ performance and market trends.

Disclosure: The author does not hold any shares of Indusind Bank at the time of writing this article. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.