Indian Bank retail-led credit growth and NIM expansion support RoE above 15 per cent
Indian Bank
BUY
₹871
₹798
₹1,098
26.06%
Investment View and Valuation
Anand Rathi Research maintained its BUY rating on Indian Bank following a strong Q1 FY27 performance that was ahead of expectations. The broker expects profitability to remain steady, supported by credit growth in line with the banking system, net interest margin above 3 per cent, controlled operating expenditure and moderate credit costs.
The 12-month target price is Rs 1,098, based on a valuation of 1.5 times FY28E price to adjusted book value.
Credit and Deposit Growth
Indian Bank’s net advances grew 15.2 per cent year-on-year in Q1 FY27, exceeding management’s earlier guidance of 11-13 per cent. Growth was led by retail advances, which increased 18.7 per cent year-on-year, and MSME advances, which grew 17 per cent. Corporate loan growth improved to 11.5 per cent from 9.2 per cent in Q4 FY26.
Deposits grew 13.5 per cent year-on-year, also ahead of management’s guidance of 9-11 per cent, while CASA deposits increased 15.1 per cent. Management stated that Indian Bank had raised US$150 million through the FCNR(B) scheme and aimed to mobilise a total of US$1.5-2 billion. Anand Rathi builds in about 14 per cent advances growth for FY27E.
Key Growth Indicators
| Indicator | Q1 FY27 / Current Growth | Reference |
|---|---|---|
| Net advances | 15.2% YoY | Management guidance: 11-13% |
| Retail advances | 18.7% YoY | Growth driver |
| MSME advances | 17.0% YoY | Growth driver |
| Corporate loans | 11.5% YoY | 9.2% in Q4 FY26 |
| Deposits | 13.5% YoY | Management guidance: 9-11% |
| CASA deposits | 15.1% YoY | — |
Participating in Future Growth Themes
Structural changes and innovation can create long-term investment opportunities. DSIJ's Vriddhi Growth focuses on businesses positioned around emerging trends and scalable growth opportunities.
Q1 FY27 Financial Performance
Reported Q1 FY27 net interest income was Rs 74,348 million, up 16.9 per cent year-on-year. Total income rose 14.4 per cent year-on-year to Rs 100,682 million. Pre-provision operating profit was Rs 55,573 million, up 16.5 per cent year-on-year, while reported profit after tax increased 10.1 per cent year-on-year to Rs 32,731 million.
Core operating profit excluding treasury income rose 22.6 per cent year-on-year and 3.6 per cent sequentially, faster than balance-sheet growth. Core fee income grew 17.7 per cent year-on-year.
| Q1 FY27 Metric | Reported Value | YoY Change |
|---|---|---|
| Net interest income | Rs 74,348 million | +16.9% |
| Total income | Rs 100,682 million | +14.4% |
| Pre-provision operating profit | Rs 55,573 million | +16.5% |
| Profit after tax | Rs 32,731 million | +10.1% |
| Core operating profit excluding treasury income | — | +22.6% YoY; +3.6% QoQ |
| Core fee income | — | +17.7% |
Margins and Returns
Net interest margin expanded 6 basis points sequentially to 3.29 per cent. The improvement was helped by a 5-basis-point sequential fall in cost of funds, a 2-basis-point increase in yields and a higher loan-to-deposit ratio.
Indian Bank reported return on assets of 1.3 per cent and return on equity of 16.3 per cent in Q1 FY27, ahead of Anand Rathi’s expectation. The broker expects return on equity to remain above 15 per cent through FY27E and FY28E.
Asset Quality and Credit Costs
Asset quality remained healthy. Gross slippages declined to 79 basis points in Q1 FY27 from 89 basis points in Q4 FY26, while net slippages improved to 22 basis points from 51 basis points. Gross NPA declined to 1.9 per cent from 2.0 per cent in Q4 FY26.
Management indicated that it saw no portfolio stress from disruptions related to recent West Asia conflicts. Indian Bank nevertheless made a prudent one-off Rs 10 billion provision for the expected credit loss transition during the quarter, against an estimated total impact of about Rs 30 billion.
Earnings Estimate Changes
Following the stronger operating performance, Anand Rathi increased its FY27E and FY28E estimates.
| Estimate | FY27E Revision | FY28E Revision |
|---|---|---|
| Net interest income | +1.8% | +3.6% |
| Pre-provision operating profit | +2.8% | +5.5% |
| Profit after tax | +3.5% | +7.0% |
Key Risks
- Higher slippages from the corporate loan book.
- Lower-than-expected loan growth.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
