IndusInd Bank Sells ₹1,573 Cr MFI NPAs Amid Market Challenges

Shares of private lender IndusInd Bank Ltd gained during early trading on December 27, following the bank's decision to sell its non-performing microfinance loan portfolio, comprising 10.6 lakh retail loan accounts worth ₹1,573 crore. This move comes amidst persistent challenges in the microfinance institution (MFI) sector.

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The bank announced plans to sell these microfinance non-performing assets (NPAs) through a public bidding process, with bids to be made entirely on a cash basis.

At 9:20 AM IST, IndusInd Bank’s shares were trading at ₹944.65 on the NSE, up by 1.4%.

For the auction, the bank has set a reserve price of ₹85 crore, which amounts to just over 5% of the loans’ principal value. Interested parties were instructed to submit their bids by December 30.

The loans being auctioned represent 4.8% of the bank’s microfinance portfolio, which was valued at ₹32,723 crore as of September 30. IndusInd Bank disclosed ₹2,259 crore in bad loans from its microfinance segment, while its total gross non-performing assets reached ₹7,639 crore by the end of the second quarter.

DAM Capital recently reduced its target price for IndusInd Bank from ₹1,600 to ₹1,200 per share but maintained its "buy" recommendation. The firm highlighted that profitability challenges are expected to persist in FY25 due to ongoing issues in MFI lending. According to the brokerage, the return on assets (RoA) is likely to stay near 1%, resulting in a significant decrease in earnings per share (EPS).

As a result, DAM Capital revised its EPS forecasts downward for FY25, FY26, and FY27 by 18%, 14%, and 13%, respectively. It also predicted an increase in slippages during Q3, with loan growth expected to decline by 12% year-on-year due to the continued contraction in the MFI book.

IndusInd Bank shares have been under pressure since the bank reported weak September quarter earnings.

For Q2FY25, IndusInd Bank posted a sharp 39.5% year-on-year decline in consolidated net profit, bringing it to ₹1,331 crore. The bank's net interest income (NII), a key profitability metric, grew 5% YoY to ₹5,347 crore during the July-September quarter, but fell short of market expectations.

Provisions and contingencies surged 87% year-on-year to ₹1,820 crore in Q2FY25, compared to ₹974 crore in the same quarter the previous year, primarily due to stress in the microfinance loan portfolio.

Meanwhile, global brokerage UBS maintained a neutral rating on IndusInd Bank while lowering its target price to ₹1,150 per share from ₹1,350, citing concerns over rising non-performing loans (NPLs) and a weakening portfolio.