- Q3 FY26 profit rose 7% YoY to INR 30.6 bn, but net interest income (NII) margin only edged up 5 bps.
- Deposits grew 12.6% YoY while advances jumped 15.4% – pushing the credit‑to‑deposit (C/D) ratio to 79.1%.
- GNPA fell to 2.23% and NNPA to 0.15%, signaling improving asset quality.
- Motilal Oswal lifted FY27/FY28 earnings forecasts by 4‑5% and bumped the target price to INR 1,025.
- Key risk: Faster advance growth may strain margins if credit quality deteriorates.
You missed the quiet surge in Indian Bank’s earnings—and it could cost you.
Indian Bank’s Q3 FY26 Results: What the Numbers Reveal
Indian Bank reported a net profit after tax (PAT) of INR 30.6 bn for the third quarter of FY26, marking a 7% year‑over‑year (YoY) increase that was broadly in line with market expectations. Net interest income (NII) climbed 7% YoY to INR 69 bn, with a modest 5 bps quarterly improvement in net interest margin (NIM), now sitting at 3.28%.
Asset growth outpaced deposits: advances rose 15.4% YoY (3.4% QoQ) while deposits increased 12.6% YoY (1.8% QoQ). This asymmetric expansion nudged the credit‑to‑deposit ratio (C/D) up by 120 basis points (bp) to 79.1%, a level that warrants close monitoring for pressure on liquidity and funding costs.
On the liability side, the CASA (Current Account Savings Account) ratio improved to 37.4%, with the domestic CASA ratio at 39.2%. A higher CASA mix usually translates to cheaper funding, a positive sign for margin sustainability.
Why the Rising CASA Ratio Matters for Future Margins
The CASA ratio is a key profitability driver for Indian banks because current and savings accounts typically carry lower cost of funds than term deposits. Indian Bank’s improvement to 37.4% suggests a healthier funding profile, potentially cushioning the modest NIM expansion. However, the benefit could be offset if the bank’s cost of capital rises due to the higher C/D ratio and the need to secure additional wholesale funding.
Sector Pulse: How Indian Bank’s Growth Stacks Up Against Peers
When benchmarked against larger peers such as State Bank of India, HDFC Bank, and the emerging players Tata Capital and Adani Bank, Indian Bank’s 7% profit growth is respectable but not spectacular. HDFC Bank posted a double‑digit profit increase, buoyed by stronger loan‑to‑deposit ratios and a higher CASA mix (≈45%). Tata Capital’s loan growth outpaced deposit growth, pushing its C/D ratio above 85%—a red flag that investors watch closely.
Adani Bank, meanwhile, leveraged its aggressive branch expansion to generate a 12% YoY advance growth, but its GNPA slipped to 2.8%, highlighting the trade‑off between growth and asset quality. Indian Bank’s GNPA of 2.23% and NNPA of 0.15% remain better than the sector average of ~2.6% and ~0.3% respectively, indicating a more disciplined credit culture.
Historical Lens: Past Turnarounds in Indian Banking
Indian banking history offers a few analogues. In FY19, Bank of Baroda posted a modest profit rise of 5% while aggressively expanding its loan book, pushing its C/D ratio to 78%. The subsequent year saw a sharp uptick in NPA levels, forcing the bank to tighten credit underwriting and eventually improve its asset quality. The lesson: rapid advance growth without commensurate credit risk controls can erode margins.
Conversely, Punjab National Bank’s 2017‑18 turnaround hinged on a disciplined CASA expansion and a decisive reduction in wholesale borrowing, leading to a stable NIM of 3.5% and a gradual improvement in GNPA from 4.2% to 2.8% over two years. Indian Bank’s current trajectory mirrors the latter approach—focus on CASA, controlled loan growth, and asset‑quality improvements—suggesting a potentially smoother path.
Technical Definitions You Need to Know
- Net Interest Income (NII): The difference between interest earned on assets and interest paid on liabilities.
- Net Interest Margin (NIM): NII expressed as a percentage of average earning assets; a key profitability indicator.
- Credit‑to‑Deposit Ratio (C/D): Ratio of total advances to total deposits; higher levels can signal funding pressure.
- CASA Ratio: Proportion of low‑cost current and savings account balances to total deposits.
- GNPA / NNPA: Gross and Net Non‑Performing Assets as a percent of total advances; lower numbers indicate better asset quality.
- PCR (Provision Coverage Ratio): Provisions set aside for bad loans divided by gross NPAs; a higher PCR reflects stronger loss‑absorbing capacity.
Investor Playbook: Bull vs. Bear Cases for Indian Bank
Bull Case
- Continued CASA expansion drives down funding costs, supporting NIM stability.
- Asset quality improves further as GNPA/NNPA trends downward, enhancing profitability.
- Motilal Oswal’s revised earnings forecasts (+4% FY27, +4.5% FY28) and target price of INR 1,025 imply a ~12% upside from current levels.
- Potential for strategic partnership or capital infusion that could accelerate branch network and digital adoption.
Bear Case
- Credit‑to‑deposit ratio nearing 80% may force the bank to tap costlier wholesale markets, compressing NIM.
- Any slowdown in CASA growth would raise the average cost of funds, eroding margin expansion.
- External macro pressures—rising interest rates or a slowdown in credit demand—could blunt loan growth.
- If asset quality deteriorates, provisioning would rise, directly hitting profitability.
Given the current data, the balance of probabilities leans toward the bull scenario, but disciplined risk monitoring remains essential.
Bottom Line: Indian Bank’s modest profit lift, improved asset quality, and a healthier CASA profile justify a BUY stance with a revised target of INR 1,025. However, investors should keep a close eye on the C/D ratio and any signs of margin compression.