By March 2018, India’s banking system reported non-performing assets (NPAs) of ₹10.4 trillion, of which PSBs accounted for ₹9 trillion. The PSU Bank Index crashed as a result.
A series of reforms followed—RBI-led stress recognition, a ₹2.1 trillion recapitalization plan, lending curbs and large write-offs. Over time, the clean-up started showing results.
By March 2025, NPAs at PSBs had fallen 69% to ₹2.8 trillion and gross NPA ratios improved from 14.6% to 2.6%. Profitability returned too — PSBs posted a record ₹1.8 trillion profit in FY25.
In this turnaround, one standout example is Indian Bank, the country’s fifth-largest PSU lender. The bank has not only stabilised its balance sheet but also reshaped its growth trajectory, mirroring the sector’s broader transformation.
About Indian Bank
Indian Bank was established in the early 20th century. It was incorporated on 5 March 1907. The bank is majority-owned by the Government of India, which holds a 73.84% stake.
A significant structural change occurred when the Government of India announced the amalgamation of Allahabad Bank, a bank with a 155-year legacy, into Indian Bank in 2019.
The amalgamated entity began operations on 1 April 2020.
As of 31 March 2025, the bank has a strong physical footprint of 5,901 domestic branches, including 1,992 in rural areas, 1,555 in semi-urban regions, 1,182 in urban markets, and 1,172 in metropolitan cities.
It also operates three overseas branches—in Singapore, Colombo and Jaffna—along with an IFSC Banking Unit in GIFT City, Gujarat. Additionally, the network includes 5,268 ATMs and bulk note acceptors.
What Indian Bank does
The bank’s core activities revolve around deposit mobilization and credit expansion. As of 30 September 2025, total business (deposits plus advances) grew 12.3% year-on-year to ₹13.97 trillion.
Total deposits stood at ₹7.8 trillion, with domestic current account and savings account (CASA) deposits of ₹2.9 trillion forming 38.87% of domestic deposits. Gross advances reached ₹6.2 trillion.
The bank’s lending focus remains tilted towards retail, agriculture and MSME segments, which together form 65.50% of gross domestic advances, while corporate advances account for the remaining 34%.
It also services a wide range of government programmes including Priority Sector Lending, PM Jan Dhan Yojana, Self Help Groups, MUDRA, PM Vishwakarma and PM SvaNidhi.
Digital adoption has meaningfully transformed the bank. Digital transactions now constitute 94% of total transactions, reducing dependence on physical branches. The bank also holds key investments in group entities such as a life and non-life insurance joint venture in partnership with Sompo of Japan, where it has a 28.52% stake, and a stockbroking and DP services subsidiary in which it owns 64.84%.
Indian Bank vs BSE Sensex
Indian Bank’s stock has risen consistently over the long term. The share price has climbed from ₹126.3 a decade ago to ₹885.13 on 19 November 2025.
A ₹10,000 investment made ten years ago would now be worth ₹70,095 — a gain of 601% despite disruptions like the NPA crisis and the pandemic. Over the same period, the BSE Sensex returned about 230%, rising from 25,842 to 85,187.
Since its 2007 listing, Indian Bank shares have delivered over 771.6% returns.
Indian Bank vs BSE Sensex: 10 Years
What drove the multibagger gains
Most of the bank’s strong performance has come in the post-2020 period. The government allocated ₹700 billion for recapitalising PSU banks in Budget 2019, strengthening capital buffers and enabling higher lending when economic conditions improved after the pandemic.
A sharp drop in bad loans supported this momentum. Gross NPAs and net NPAs have fallen dramatically over recent years, reducing credit costs and allowing more operating profits to translate directly into bottom-line growth. Improved asset quality has helped the bank lend more confidently. As the rate cycle normalizes, margins will likely improve.
With fewer new slippages, fewer old bad assets, and better recoveries, the bank’s ‘credit costs’ decreased. This directly boosted net profit by reducing provisions.
Financial performance
The bank’s total business expanded almost 50% in four years, rising from ₹9.2 trillion in FY21 to ₹13.3 trillion in FY25. Net interest margin improved from 2.8% in FY21 to 3.4% in FY25, lifting net interest income by nearly 50% to ₹92.2 billion over the same period.
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Net profit increased from ₹30 billion in FY21 to ₹109.2 billion in FY25 — a 3.6-fold rise. Return on assets strengthened from 0.5% to 1.3%, and book value per share increased to ₹423.
This stronger profitability helped re-rate the stock. The price-to-book ratio, which was 0.3 times in April 2021, now stands near 1.5 times.
In the first half of FY26, net interest income grew 4.4% year-on-year to ₹129.1 billion, while net interest margin (NIM) moderated to 3.2% due to interest-rate transitions. Net profit rose 17.2% to ₹59.9 billion, and book value per share reached ₹467.
What lies ahead
Indian Bank aims to bring GNPA below 2% by FY26, improving on its earlier target of sub-3%. Total recoveries are expected between ₹55 billion and ₹65 billion for the year. The bank continues to focus on managing its cost-to-income ratio, currently at 46.1% (H1FY26).
The bank expects NIM pressure in Q3 FY26, as about 40% of the MCLR book will be repriced during that period. Additionally, 22% of the total term deposit book will be repriced during this quarter. Despite this, the net interest income (NII) is expected to decline marginally, with improvement likely by Q4 of FY26.
Official credit growth guidance remains at 10% to 12%, which is expected to be driven by consumption, especially car loans and consumer goods.
The bank is deliberately keeping corporate credit low, especially some low-yield corporate advances. However, the sanction rate for the corporate book has increased by 60 bps.
The bank’s primary focus is on expanding its low-cost savings accounts. To do this, it is targeting salary accounts, which offer stability and cross-selling opportunities. The bank is preparing for the transition to the expected credit loss provisioning system and expects the financial impact to be manageable.
The required provision could be covered within one year, with anticipated writebacks from the bank’s high Provision Coverage Ratio. The bank is also embracing digital technology. Indian Bank introduced Agentic AI-based wise calling for collections, expected to help reduce the Special Mention Account (SMA) book.
The bank has empanelled 168 fintech companies for customized solutions to help it garner business.
Conclusion
The overall banking industry delivered better-than-expected profit performance in Q2 FY26. PSU banks have been gaining market share and are currently growing credit at 14%, with resilience expected to continue.
JM Financial expects bank credit growth to accelerate to 13% by end-FY26, supported by stronger demand for automobiles and discretionary goods following recent tax cuts.
Margins are likely to improve later in FY26, while credit demand remains healthy. As a key pillar of India’s economic growth cycle, the banking sector appears positioned to sustain momentum. Even so, investors must evaluate fundamentals, governance standards and valuations carefully before investing.
Happy investing.
Disclaimer: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com.
