IndusInd Bank posted a consolidated net profit of ₹1,242 crore for the quarter ended September 30, 2026. That's a 20% jump from the previous quarter and a complete turnaround from the ₹437 crore loss in the same period last year. The stock, however, didn't celebrate. Shares closed 1.82% lower at ₹835 on the NSE the day results were announced.
The profit swing wasn't magic. It came from two main places: provisions dropped 54% year-on-year to ₹1,223 crore, and other income jumped 36% to ₹2,248 crore. Pre-provision operating profit, a key measure of banking health, surged 40% year-on-year to ₹2,874 crore.
Let's break down the ₹1,242 crore figure. The year-on-year swing in pre-tax profit was about ₹2,236 crore. Roughly 63% of that came from lower provisions. The rest came from higher operating income, particularly fees and other income.
Net interest income (NII), the core money a bank makes from lending, grew just 4% year-on-year to ₹4,569 crore. In fact, it fell 2% from the previous quarter. So the profit beat wasn't powered by lending income. It was powered by cleaning up the balance sheet and earning more from non-lending activities like fees and treasury gains.
Here's where things get interesting. Net interest margin (NIM) slipped to 3.23% in Q2, down from 3.57% in the previous quarter. At first glance, that looks like a 34 basis point drop. But management clarified that the Q1 number included a one-time ₹284 crore interest income from a tax refund. Strip that out, and Q1 NIM was actually 3.35%. So the real decline was 12 basis points.
What caused this 12 basis point dip? About 7 to 8 basis points came from FCNR(B) deposits. The remaining 4 to 5 basis points came from changes in the loan mix.
FCNR(B) stands for Foreign Currency Non-Resident (Bank) deposits. These are deposits from non-resident Indians held in foreign currency. The Reserve Bank of India had opened a special swap window to help banks mobilize these deposits. IndusInd Bank raised $3.51 billion through this window.
Here's the catch. These deposits aren't cheap to deploy. The bank used about half of this money to lend $1.73 billion through its GIFT City branch. These foreign currency loans typically carry lower yields than domestic loans. Plus, when you raise funds before deploying them, you're paying interest without earning anything in return. That spread compression hit the NIM by 7 to 8 basis points.
The bank has already cut its certificate of deposit book by about ₹10,000 crore, replacing some of that costlier wholesale funding with FCNR(B) deposits. But the immediate effect was a margin squeeze.
The bank doesn't disclose the exact cost of FCNR(B) deposits or the swap cost. But we can see the overall picture. The cost of funds stood at 5.11% in Q2, down from 5.43% a year ago but up from 5.05% in the previous quarter. The cost of deposits rose to 5.96% from 5.93%. Investor Presentation +1
Meanwhile, the yield on advances fell to 10.67% from 10.93% in the previous quarter and 11.23% a year ago. So the bank was earning less on its loans while paying slightly more for deposits. That's a double squeeze on margins. Investor Presentation
The funding mix also shifted. Term deposits now make up 72% of average deposits, up from 70% in the previous quarter. Current and savings account deposits, which are cheaper, slipped to 27% of the mix. This shift toward costlier funding added to the margin pressure. Investor Presentation
While margins were under pressure, asset quality was quietly improving. Gross non-performing assets (GNPA) fell to 2.73% from 3.25% in the previous quarter and 3.60% a year ago. Net NPAs dropped to 0.83% from 0.95% in the previous quarter.
Gross slippages, which are fresh loans turning bad, fell to ₹1,460 crore from ₹1,660 crore in the previous quarter and ₹2,537 crore a year ago. The early stress indicators, called SMA-1 and SMA-2, were at just 0.05% of net advances. Investor Presentation
This improvement meant the bank had to set aside less money for bad loans. Provisions fell 54% year-on-year and 12% from the previous quarter. That's a huge part of why profit jumped even though NII growth was modest.
Management expects to recover "some" of the 12 basis point NIM decline in Q3 and Q4. CFO Viral Damania said the margin trajectory should improve as the bank optimizes its funding mix and increases retail asset growth.
The bank is counting on three main drivers. First, faster retail asset growth in the second half of the year. Second, further reduction in the certificate of deposit book. Third, recent and expected rate hikes, which should help asset yields across the banking system.
The microfinance book, which had been struggling, grew 8% from the previous quarter. This was the first significant growth in six to eight quarters. That's a positive sign for higher-yielding retail assets.
The strategy isn't without risks. The bank mobilized about 2.75% of the total FCNR(B) scheme deposits, against its natural deposit market share of about 1.5%. This gives it more liquidity and diversifies funding, but it comes at the cost of margin pressure.
The CASA ratio, a measure of low-cost deposits, fell to 28% from 29.4% in the previous quarter and 30.7% a year ago. This means funding costs could stay elevated if the bank can't attract more current and savings account deposits.
Loan growth outpaced deposit growth in Q2. Advances grew 11% from the previous quarter while deposits grew just 3.4%. This could push up the credit-to-deposit ratio and create funding pressure.
Management is also being cautious about drought-declared states like Karnataka, Maharashtra, and Andhra Pradesh, even as it grows the microfinance book. Any stress in these portfolios could reverse the asset quality gains.
The Q2 profit looks solid but has some one-time elements. Other income, which includes trading gains and recoveries from written-off accounts, was ₹2,248 crore, up 26% from the previous quarter. Recoveries alone were ₹337 crore, up from ₹248 crore in Q1. These can be lumpy. Investor Presentation +1
The core lending business, NII, grew only 4% year-on-year. The real test will be whether NIM recovers as expected in the second half. If retail asset growth picks up and the bank deploys its FCNR(B) funds more efficiently, margins should improve.
The bank is targeting a 1% return on assets (ROA) by the end of FY27. Q2 ROA was 0.87%, up from 0.78% in Q1 and negative a year ago. There's still a gap to bridge, but the trend is moving in the right direction. Investor Presentation
Keep an eye on three things in the coming quarters. First, the NIM trajectory. Has the bank started recouping that 12 basis point decline? Second, the CASA ratio. Is the bank able to attract more low-cost deposits? Third, asset quality. Do slippages stay low as the loan book grows?
The margin pressure from FCNR(B) deposits is real but temporary. The bigger story is whether IndusInd Bank can translate its improved asset quality and growing loan book into sustainable profitability. The pieces are falling into place, but the execution in the second half of the year will tell us if this turnaround is for real.
