IndusInd Bank's last step to a 1% return on assets has to come from income

IndusInd Bank has spent a year climbing out of a loss. Its return on assets, profit measured against everything the bank owns, reached 0.87% in the September 2026 quarter, up from a normalized 0.63% the quarter before, and management repeated its aim of leaving the financial year at 1%. The bank says the rest of that climb now has to come from income rather than lower credit costs.

So far the recovery has come mostly from smaller provisions for bad loans. In the filed results, pre-tax profit moved from a loss of ₹594 crore a year earlier to a profit of ₹1,562 crore last quarter. The single line that combines operating costs and provisions for bad loans fell by ₹1,398 crore over the year, which is 64.8% of that turn, calculated from the reported figures. Non-interest income added ₹599 crore; net interest income, the spread between what loans earn and what deposits and borrowings cost, added only ₹159 crore.

Viral Damania, the chief financial officer, gave the same order: credit cost first, then expenses, then income. He also said lower credit costs would keep adding to profit from here, but at a smaller scale than in the last few quarters and no longer as the main source of gains. That leaves the margin and non-interest income to carry the remaining distance.

Both moved awkwardly last quarter. Net interest margin fell to 3.23% from a normalized 3.35%, which the bank put down mainly to a drive that raised $3.51 billion of foreign-currency deposits from non-resident Indians, known as FCNR(B), under a Reserve Bank of India swap window. The extra funding swelled the balance sheet and cut into the share of cheap current and savings deposits, so the bank's average cost of deposits edged up even though savings and term deposit rates went down. Management treats the effect as temporary. "But yes, we would look at recouping the drop that we've seen over the next 2 quarters," Damania said. In the same call he said more rate rises look likely before March, which is not a backdrop that brings deposit costs down.

Non-interest income did the lifting instead. It came to ₹2,248 crore by the bank's figures, which credited business momentum and treasury income, and in the filed results it rose by more than the whole sequential gain in pre-tax profit while net interest income slipped. Part of the quarter before's interest income was a one-off from a tax refund; excluding it, the bank said net interest income rose 4% from the quarter before. Some of the non-interest income jump will not repeat either: Damania said one-off gains, including bond sales, came to about ₹100 crore, though he said most of the rise was client fee income.

The capital position has also shifted. The core equity ratio, CET1, fell to 15.55% from 16.10% at the end of the quarter before as the balance sheet grew. In April the bank said its capital was enough to support growth for at least a year and that it had no plan to raise more soon. Asked this time whether a raise could come within the year, Rajiv Anand, the chief executive, said an enabling provision is in place and the bank will look at a raise; the word describing the timing is inaudible in the transcript. Against that, he put the one-time pre-tax cost of moving to expected-credit-loss provisioning lower than the analyst's figure, which he corrected on the call.

None of this moves the target, which the bank kept. It shifts the weight onto income. The provision gains that built most of the climb are, by the finance chief's account, slowing; the margin has to recover the ground the deposit drive cost; and non-interest income has to hold up without the bond-sale gains. The current quarter's margin and non-interest income will show whether those three things are happening together.