Indian Bank's CASA-led deposit growth supports stable margins and RAM loan growth

Investment Case and Bank Profile

SBICAP Securities Limited's August 21, 2026 report highlights Indian Bank's conservative growth strategy, strong return profile and prudent provisioning. Indian Bank is the seventh-largest public-sector bank by advances, with total business of Rs 15.3 trillion as of June 2026. Deposits stood at Rs 8.4 trillion, advances at Rs 6.8 trillion and the CASA ratio at 39.8 per cent. The Government of India held a 73.8 per cent stake.

Under MD and CEO Binod Kumar, who has been in office since January 2025, the bank is focusing on growth led by retail and RAM, comprising retail, agriculture and MSME.

The broker's positive investment case centres on healthy loan growth, deposit mobilisation and stable margins. SBICAP Securities expects advances to grow 13-14 per cent in FY27E, driven by RAM and sustained jewel-loan demand.

Loan Growth and Retail Expansion

Advances rose 13.9 per cent year-on-year in Q1 FY27, led by 15 per cent growth in RAM. Retail growth was supported by non-agricultural jewel loans, which increased 114 per cent year-on-year, and auto loans, which grew by about 46 per cent. Total gold loans reached Rs 1.3 trillion.

Management does not expect the previous year's 26-28 per cent jewel-loan growth, which was largely driven by higher gold prices, to recur. However, it expects healthy growth of 15-16 per cent during the current fiscal year. Loan-to-value levels remain comfortable despite recent fluctuations in gold prices.

Deposit Mobilisation and Liquidity

Management's strategy is to maintain a limited gap between deposit and credit growth to protect net interest margins. Deposit growth of 13.5 per cent year-on-year in Q1 FY27 broadly tracked advances, unlike the wider loan-to-deposit gaps seen at other public-sector banks.

CASA deposits increased 15.3 per cent, with current-account balances up 26.3 per cent and savings deposits up 13.5 per cent. The CASA ratio was 39.7 per cent, and management remains on track towards its 40 per cent target. Branch execution improved, with 51 per cent of branches achieving CASA targets in the quarter versus 25-27 per cent previously.

Management also plans to raise USD 1.5-2 billion through FCNR-B deposits and external commercial borrowings. Around USD 150 million had been raised and a USD 1 billion pipeline was in place, potentially providing about Rs 18,000 crore of liquidity.

Margins and Provisioning Outlook

Management expects FY27 net interest margin to remain at the upper end of the 3.15-3.25 per cent range. Reported asset yields increased by 2 basis points, while the bank is exiting thinly priced loans to improve yields. Retail term-deposit pressure has eased, and residual repricing is expected to affect margins by only 2-3 basis points.

SBICAP Securities considers Indian Bank relatively well placed for the expected credit-loss transition. The one-time impact is estimated at 4 per cent of net worth, versus 7-14 per cent for public-sector-bank peers, and is expected to be absorbed in FY27. Proactive rule-based provisioning on SMA 1 and SMA 2 assets supports the lower impact.

Valuation and Recommendation

At the report CMP of Rs 872, Indian Bank traded at 1.4 times FY27E and 1.2 times FY28E price-to-book, based on Bloomberg consensus estimates. SBICAP Securities has a BUY recommendation with a 12-month target price of Rs 1,003, implying 15.0 per cent potential upside.

Financial Summary

Key Risks

• Weaker deposit growth.
• Margin pressure.