IndusInd Bank’s Road To Redemption Will Be Slow And Unforgiving

IndusInd Bank is beginning a new financial year not with a fresh start but with a forced reckoning. A staggering ₹23.29 billion loss in the final quarter of 2024-25 has exposed serious cracks in the institution’s foundations fuelled by governance failures and accounting lapses. Misstatements and suspected fraud have not only hit the balance sheet but also corroded the bank’s credibility. 

While the management now insists that all known irregularities have been recognised, this is less a clean slate than a scorched one. The loss wasn’t a one-off aberration; it was the cumulative outcome of misreported income, misclassified assets, and overridden internal controls. Most damningly, these failures were not systemic flukes, but conscious concealment. 

Earnings Shocker 
The numbers are as alarming as the disclosures. Interest income fell nearly 13% year-on-year. Net interest income crashed 43%. Net interest margins, once a strength, have fallen to 2.25%—a drop of 168 basis points in just one quarter. Slippages spiked to ₹50.14 billion, most of it from a misclassified microfinance loan book. In all, the bank has taken a ₹49 billion hit from accounting and classification issues, well above earlier estimates. 

This financial setback is amplified due to the crisis at the top. The resignation of CEO Sumant Kathpalia and Deputy CEO Arun Khurana, as more irregularities surfaced, has led to a Committee of Executives running day-to-day operations. But this arrangement is neither sustainable nor confidence-inspiring. A new CEO, possibly one parachuted by the RBI, must soon take charge. 

Rebuilding Trust
But the bigger challenge lies ahead: rebuilding trust. Retail deposit growth has stagnated. Investor sentiment is shaken. Brokerage houses have uniformly downgraded expectations, slashing price targets and revising down return projections. Several now expect IndusInd’s return on assets to remain below 1% for at least the next two years. 

For any incoming chief, the task will not be just about growth. Governance architecture must be rebuilt. The second line of leadership, depleted and demoralised, must be reconstituted. Risk management, particularly in high-volatility segments like microfinance, will need sharper oversight and lower exposure. These are essential, if unglamorous, steps—and unlikely to yield quick results.

Audits and stress tests have been completed, and internal controls tightened wherever weaknesses surfaced. Yet this house-cleaning has exacted a heavy price. Gross non-performing assets have risen to 3.13%, while microfinance NPAs now stand at 13.18%—a stark indicator of structural asset quality concerns.

This is where the bank finds itself at a crossroads. On paper, IndusInd remains a systemically significant player with deep institutional relationships and a diversified portfolio. But none of that insulates it from the long-term impact of broken internal processes and investor wariness. 

The next hurdle is deposit mobilisation. Brokerages are clear-eyed in their verdict: IndusInd’s recovery will not be swift. Most expect subdued earnings growth until at least 2026-27. Some foresee a 40-60% drop in earnings estimates for the next two years. 

In this climate, even stabilisation will be an achievement. The bank will need to maintain higher liquidity buffers to regain depositor trust, which in turn will suppress margins and delay profitability. Moreover, reputational damage in banking—where trust is currency—takes years, not quarters, to repair. 

Yet, there is a silver lining in the clarity of the crisis. The full scale of the rot has been acknowledged. The fallout has already played out in the numbers. The bank is not in denial. That, at least, is a start. 

But the new financial year must not be mistaken for a new beginning. It is, at best, a fragile pause before the hard grind of repair. IndusInd Bank’s future will be determined not by how quickly it grows, but by how honestly it reforms.