IndusInd Bank Hit by Goldman Downgrade; Stock Tumbles 3.5% on Growth Concerns

Mumbai, July 2, 2025 — Shares of IndusInd Bank fell sharply on Tuesday, declining 3.5% to ₹1,385.20 on the BSE, after global brokerage Goldman Sachs downgraded the private lender, citing mounting concerns over its growth trajectory and potential asset quality headwinds. The downgrade sent ripples through the banking sector, with analysts turning cautious on the near-term outlook for mid-sized private banks amid rising competition and macroeconomic uncertainties.

Goldman Sachs Downgrades to 'Sell'

Goldman Sachs revised its rating on IndusInd Bank from 'Neutral' to 'Sell', slashing the target price to ₹1,250 from ₹1,500. The brokerage pointed to limited levers for growth in key business segments, concerns over unsecured retail loan exposure, and intensifying competition from larger peers with stronger capital buffers.

"While IndusInd Bank has seen stable performance in recent quarters, we see limited upside from current levels given constrained NIM expansion and slower-than-expected loan growth," the Goldman Sachs report stated.
"Additionally, the risk-reward appears unfavorable in light of rising stress in certain retail and MSME segments."

Market Reaction and Trading Volumes

Following the downgrade, IndusInd Bank's stock opened lower and witnessed heavy selling throughout the session. Nearly 4.8 million shares changed hands on the NSE and BSE combined, significantly above the 30-day average volume. The bank’s market capitalization eroded by over ₹4,000 crore in a single trading day.

The Nifty Bank index also came under pressure, ending the day 0.8% lower, with IndusInd Bank among the top laggards.

Analyst Community Turns Cautious

Several domestic analysts echoed Goldman’s concerns, although they maintained relatively more balanced views.

Motilal Oswal Financial Services maintained a 'Neutral' rating with a target of ₹1,450, citing pressure on net interest margins and the bank’s slower pace in building a diversified retail loan book.

"IndusInd Bank’s credit growth has lagged peers over the last three quarters. While asset quality remains manageable, higher exposure to CV/CE loans and unsecured segments like personal loans needs closer monitoring," said Nitin Aggarwal, banking analyst at Motilal Oswal.

On the other hand, ICICI Securities retained a 'Buy' rating but cut its earnings forecast for FY26 by 4%, highlighting subdued deposit traction and NIM compression.

Key Growth Concerns

The downgrade comes amid growing scrutiny of the bank’s reliance on vehicle finance and unsecured lending. The commercial vehicle (CV) segment, which forms over 25% of its loan portfolio, is under pressure from rising fuel prices and muted demand in rural India.

Additionally, the Reserve Bank of India (RBI) has recently raised flags on the sharp growth in unsecured credit across the banking sector. IndusInd Bank, with a relatively higher share of personal loans and credit card receivables compared to peers like Axis Bank and Kotak Mahindra Bank, could face tighter regulatory scrutiny going forward.

Goldman Sachs also highlighted weak liability-side dynamics as a structural challenge. Despite efforts to boost retail deposits, IndusInd continues to rely heavily on bulk deposits, raising concerns over cost of funds and liquidity buffers.

Recent Financial Performance

In the March 2025 quarter, IndusInd Bank reported a 15% year-on-year rise in net profit to ₹2,345 crore, supported by lower provisioning and steady loan growth. However, net interest income rose just 11% year-on-year, with net interest margin (NIM) narrowing slightly to 4.1%.

Gross non-performing assets (GNPA) stood at 1.87%, while the provision coverage ratio remained healthy at 72%. Yet analysts believe future provisioning could increase, especially if macroeconomic headwinds worsen.

Management Commentary

Responding to investor concerns, IndusInd Bank’s management has maintained confidence in its long-term strategy and asset quality.

“Our growth engines remain well-diversified, and we are seeing strong traction in retail and MSME lending. Asset quality remains under control, and we are continuously strengthening our underwriting standards,” said Sumant Kathpalia, MD & CEO of IndusInd Bank, in a post-results call last week.

The bank is also focusing on digital banking initiatives and has recently launched AI-powered platforms for customer engagement and credit scoring.

Investor Outlook: Proceed with Caution

While the long-term prospects for IndusInd Bank may still hold promise, the recent downgrade serves as a reminder of the fragile growth environment. Investors may need to tread cautiously in the near term, especially as regulatory and macro risks cloud visibility.

“The risk-reward has turned unfavorable for now,” said Prakash Diwan, market expert and former head of institutional equities. “A better entry point could emerge once clarity emerges on NIM trends and unsecured loan performance.”

Despite the near-term weakness, some analysts believe the stock could rebound if the bank surprises on earnings or guides for stronger growth in retail deposits and digital initiatives.

For now, market participants are likely to closely watch the Q1 FY26 earnings, due later this month, for further direction.