The Quarter in Brief

ICICI Securities analysts Jai Prakash Mundhra and Amansingh Sahajsinghani describe a quarter in which growth accelerated while return on assets held at a peer-beating 1.31%. Net profit rose 14.7% to Rs 3,462 crore, and net interest income climbed an in-line 17.8% to Rs 7,719 crore.

Operating profit of Rs 7,090 crore, up 46.6%, flatters the core trend: other income jumped 59% on a one-time NSE share gain, nearly all of which went straight into provisions, which tripled to Rs 2,222 crore. Operating expenses grew 9%.

Guidance Moves Up a Notch

Management raised its FY27 targets for both sides of the balance sheet and said loan growth could even reach 14% to 15%.

Where the Loan Growth Came From

Overseas lending, funded by foreign-currency non-resident (FCNR) deposits, led the quarter with an 18% sequential jump. Agriculture accelerated 8%, gold loans grew more than 10%, and the agri-gold book alone reached Rs 1.16 lakh crore, up 22%. Domestic corporate growth stayed deliberately slow at 1%, but the bank has a Rs 63,000 crore pipeline (Rs 30,000 crore already sanctioned) and expects 10% to 12% corporate growth.

Gross advances by segment, Q2FY27. Top half: sequential growth; bottom half: annual growth.

On the funding side, deposits rose 3.5% sequentially. The bank used FCNR money to repay Rs 10,000 crore of bulk deposits and halved its monthly retail term-deposit mobilisation to Rs 5,000 crore. CASA deposits grew 14%, and management aims to lift the CASA ratio to 40%.

Margins Hold, Treasury Delivers

Despite costlier FCNR funding, net interest margin edged up 2 basis points to 3.31%. Yield on advances rose 8 basis points to 8.17%, helped by better corporate pricing, while cost of deposits rose 9 basis points to 4.89%. Management guides for a further 5 to 6 basis point margin gain in the third quarter, aided by the recent 25-basis-point repo rate increase.

Treasury income included Rs 1,390 crore of one-off gains on NSE shares. Excluding that, the bank booked a mark-to-market loss of just Rs 11 crore, because roughly 98% of the hit from hardening bond yields, about Rs 630 crore, was routed through the available-for-sale reserve, which swung to minus Rs 123 crore from plus Rs 503 crore.

Building the ECL Wall, Brick by Brick

The defining decision of the quarter was where the NSE money went. Indian Bank still estimates its one-time ECL transition hit at Rs 3,500 crore, excluding mark-to-market on held-to-maturity bonds, and now holds Rs 2,500 crore in provisions against it, including Rs 1,500 crore added this quarter.

Asset Quality: Quiet Where It Counts

Slippages eased to 0.67% from 0.77%, helped by retail and MSME. Gross NPA fell to 1.61% from 2.60% a year earlier, net NPA held at 0.14%, and provision coverage stood at 91.5%, or 98% including written-off accounts. Management reported no stress in any segment and crop-loan exposure in drought-hit states below Rs 1,000 crore.

Estimates and the Rs 1,020 Target

ICICI Securities raised its FY27 loan growth estimate to about 16% and lifted earnings per share by roughly 4% for FY27 and 3% for FY28. It expects return on assets of about 1.4% and return on equity of 18% to 19% through FY28, and sees the bank as among the least exposed to drought stress.

The multiple is unchanged; higher book estimates drive the Rs 20 increase. Rs 1,020 equals about 1.44 times, which the house rounds to 1.4 times.