IndusInd Bank sees microfinance slippages stabilising by FY26-end despite Q1 profit hit

IndusInd expects slippages to stabilise by Q3

IndusInd Bank saw a sharp drop in its June quarter profit as stress in its microfinance portfolio continued. However, the management in its post-results call said it expects slippages in the segment to stabilise by the third or fourth quarter of FY26.

"Slippages, though elevated from normalised levels, have declined meaningfully quarter-on-quarter," the bank said, adding, "We expect slippages to stabilise by quarter three, may extend to quarter four."

To tighten credit quality, the bank has introduced enhanced quality checks in its microfinance lending, including revalidating KYCs, strengthening underwriting, and conducting loan utilisation checks for every disbursement. These steps, while hitting growth in the near term, are part of a longer-term push for sustainable lending.

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“While these measures temporarily impacted disbursement growth, they also provided critical validation and process enhancements and reinstalled the confidence in our ability to achieve sustainable growth in this segment going forward,” the management noted.

In the June quarter, microfinance disbursements dropped 36 percent sequentially, leading to an 8 percent decline in the segment’s loan book. Overall, the microfinance and merchant business loan book contracted 6 percent quarter-on-quarter and 16 percent year-on-year, to Rs 35,712 crore.

The cautious stance comes amid a tough earnings print for the bank. IndusInd reported a 68 percent year-on-year drop in net profit to Rs 684 crore in Q1FY26, as provisions surged and lending momentum slowed. Total loans declined 3.1 percent sequentially, while deposits fell 3.3 percent.

The bank's asset quality metrics also deteriorated, with gross non-performing assets (GNPA) rising to 3.64 percent from 3.13 percent in March.

“We have not sold any NPAs to ARCs over the past six months, instead choosing to focus on internal collections,” the bank said, attributing the rise in GNPA to this internal resolution approach.

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