It was a baptism by fire for industry veteran Rajiv Anand, who took charge as managing director and chief executive officer (CEO) of IndusInd Bank on 25 August 2025, just as the bank was grappling with governance lapses. A year into his three-year tenure, Anand has helped steer the lender through its most difficult phase. Now comes the harder part: turning a repaired balance sheet into sustainable returns.
IndusInd is targeting a 1% return on assets (RoA) by the end of fiscal year 2027 (FY27)—the first milestone in its recovery after microfinance and governance problems eroded growth and profitability. At June-end, annualized RoA stood at 0.78%, or 0.63% after adjusting for interest on tax refunds.
For IndusInd, reaching 1% RoA would signal a stabilization of the balance sheet, improved underlying profitability and recovery from its governance challenges. No comparable large private bank, except IndusInd, currently has an RoA below 1%.
But 1% is not the end game. The bank will eventually need to generate a return on equity (RoE) above its cost of equity to earn a rerating.
“The immediate focus is on improving business momentum, lowering credit costs and continuing operating leverage,” the bank's spokesperson told Mint in an email response.
The target comes after a dramatic reversal in the bank’s fortunes. Less than two years ago, IndusInd was being rewarded for strong execution. Its stock delivered nearly 400% between April 2020 and September 2024, before a deterioration in its microfinance portfolio began weighing on sentiment.
Then came the accounting crisis.
On 11 March 2025, a disclosure about discrepancies in the bank’s derivatives portfolio sent the stock tumbling 27% in a single day to ₹655.95 on the National Stock Exchange. What initially appeared to be an accounting lapse widened into regulatory investigations, forensic reviews, senior-management exits and allegations of insider trading. Then chief executive Sumant Kathpalia and deputy Arun Khurana resigned in April of that year.
After a year dominated by governance concerns, the June quarter (Q1FY27) results offered the first clear sign that IndusInd’s operating performance was beginning to turn.
The repair begins
Consolidated net profit jumped 75% sequentially to ₹1,037 crore in Q1FY27, helped by a return to positive loan growth and improving asset quality. After five consecutive quarters of decline, loans grew 3.3% sequentially to ₹3.26 trillion, driven by the corporate segment, while retail was flat and SME declined.
Provisions fell 7% quarter-on-quarter. Gross non-performing assets (NPAs) improved from 3.43% to 3.25%, while net NPA declined marginally from 1% to 0.95%.
The deposit franchise also strengthened. Retail deposits rose 4% sequentially, led by term deposits, taking their share of total deposits to a record 49.5%. Overall deposits increased to ₹4.15 trillion. Capital adequacy remained comfortable at 17.15%, while the liquidity coverage ratio stood at 127%.
IndusInd expects loan growth to be in line with the industry in FY27, with its asset mix gradually shifting back towards higher-yielding retail and SME products. But the bank has considerable ground to make up: credit growth for scheduled banks stood at 19% in July, according to Reserve Bank of India data.
With balance-sheet repair and earnings recalibration largely complete, IndusInd has entered the next phase of its turnaround: profitable, risk-adjusted growth. The stock has recovered most of its losses since 11 March 2025 and now trades at around ₹999 a share, but remains well below its September 2024 peak of ₹1,450.
How it all unravelled
The operational recovery is a marked shift from where IndusInd stood just over a year ago. What began in March 2025 with a disclosure of discrepancies in its derivatives portfolio soon widened into a much deeper governance problem. The eventual adjustment amounted to ₹1,960 crore—more than 2% of the bank’s net worth.
The bank attributed the issue to changes in accounting regulations that had resulted in an overstatement of profits and net worth dating back to September 2023. But a forensic review by Grant Thornton found gaps in internal controls and extensive reliance on manual accounting processes. Subsequent findings also revealed communications dating back several years, suggesting that management had been aware of the lapses for 15 months before they were disclosed.
The derivatives issue, however, was only the beginning.
Around ₹674 crore was incorrectly recognized as microfinance interest income, while approximately ₹595 crore was reflected as unsubstantiated balances under “Other Assets”. Another ₹172.6 crore was incorrectly classified as fee income.
The findings challenged the management’s earlier assertion that the accounting issues arose solely from changes to derivative-accounting regulations in September 2023. They also showed that the governance weaknesses extended beyond treasury operations into the lending business.
That distinction matters. Derivatives accounting may be viewed as ancillary to a bank’s primary business. Problems involving microfinance income, however, directly raise questions about the quality of reported earnings and loan-book metrics.
Rebuilding the franchise
Under Anand, IndusInd has focused on strengthening its deposit franchise, particularly through retail mobilisation.
Customer-facing processes have been redesigned, including improvements to the onboarding journey and a 60-70% reduction in account-activation turnaround times. The bank said these initiatives have supported robust new-to-bank CASA acquisition and healthy growth in its NRI and affluent-banking franchises.
It has also restructured branch banking across its network of more than 3,000 branches to improve productivity and deepen retail-liability granularity.
The accounting adjustments have now been made and the losses recognized. But the governance overhang has not entirely disappeared.
An interim order from the Securities and Exchange Board of India (Sebi) alleges that certain former senior executives traded in the bank’s shares while allegedly possessing unpublished price-sensitive information relating to the derivatives discrepancies. Proceedings are ongoing and no final order has been passed.
The Serious Fraud Investigation Office (SFIO) is separately investigating potential violations under the Companies Act, while the National Financial Reporting Authority (NFRA) continues to examine audit-related issues.
A media report also said a fresh whistleblower complaint had been sent to the Prime Minister’s Office and multiple regulators, seeking an investigation into alleged insider trading and governance lapses at IndusInd. The bank said it had not received any communication from any government or regulatory authority.
The harder road ahead
The more immediate challenge is the bank’s microfinance portfolio, which remained stressed even as overall asset quality improved. IndusInd reported ₹817 crore of write-offs from the segment in Q1FY27.
Microfinance had already been a source of pressure before the accounting crisis erupted, with deteriorating asset quality weighing on the stock after its Q2FY25 results.
The bank said the trend has since improved meaningfully, with fresh slippages, collection efficiency and overdue levels moving closer to normalized levels. Yet gross NPAs remain elevated at 3.25%.
Anand’s most onerous task has been rebuilding the management team, said Suresh Ganapathy, managing director and head of financial services research at Macquarie Capital, in a note.
Since Anand joined, there has been a complete overhaul of senior management, with almost every CXO new to the organization, Ganapathy said.
But the turnaround cannot end at 1% RoA, Ganapathy said. Even at that level, RoE would remain in single digits, while a cost of equity (CoE) of around 12% means RoE needs to exceed CoE for the bank to command a higher valuation multiple.
Peers HDFC Bank and Axis Bank, with RoAs of 1.8% and 1.6%, respectively, are struggling to cross 1.5x price-to-book value, he highlighted.
IndusInd says it is working towards a three-year strategy in which FY27 is focused on growing in line with the market, FY28 on beginning to gain market share and FY29 on achieving leadership in some of the focus areas being built by the bank.
But cracking the RoA-RoE equation could prove difficult amid margin pressure and intense competition. Net interest margin (NIM) could face further pressure in Q2FY27 before recovering in the second half as higher-yielding retail and microfinance businesses accelerate.
JM Financial Institutional Securities estimates IndusInd’s RoE at around 9% in FY28, up from 6.3% in Q1FY27 but still below private-bank peers. Persistent near-term NIM pressure and the expected-credit-loss transition could also weigh on book value.
“A mid-single-digit RoE for a longer-than-expected period is likely to weigh on the stock, particularly as it trades at over 1x price-to-book,” said Santanu Chakrabarti, India analyst—BFSI, BNP Paribas.
The bank’s guidance on its RoA target was also more conservative than the market had expected, Chakrabarti said. He cautioned that retaining key personnel could prove difficult amid poaching attempts by peers, particularly in the core commercial vehicle and MSME segments, potentially eroding the bank’s RoE moat.
“Rebuilding trust and confidence in the liabilities franchise, amid intense competition for deposits, is also unlikely to be easy,” he added.
That competition is structural. The liability side of Indian banking has shifted from traditional low-cost Casa deposits towards competitive retail-term deposits and alternative financial savings, as household savings increasingly move into mutual funds and other investment channels.
For IndusInd, the answer is to reduce reliance on bulk deposits and build a more granular mix of retail, affluent, NRI and SME deposits. But risks remain on the asset side, too.
The vehicle-finance business is one such vulnerability. Net slippages in the segment stood at 2.01% in Q1FY27, reflecting seasonality, with management expecting an improvement in the second half, as seen in previous years. The segment accounts for nearly 30% of the loan book, making a delayed recovery a potential threat to the RoA trajectory.
At the same time, IndusInd aims to close a roughly 150-basis-point cost-of-funds gap with its closest peer over the medium term, management had said on the Q1FY27 earnings call, without naming any peer.
The first phase of Anand’s turnaround has restored profitability. The next—and arguably harder—task is to restore confidence.
Trust is an asset that takes years to build and can disappear overnight.
“IndusInd has entered FY27 with strengthened governance and oversight framework, sharper internal controls, robust risk management practices and clear accountability,” the bank said.