Indian Bank makes a corporate announcement

Q3 FY25’s margin improvement was driven by loan yields rising faster than deposit costs, but the reported disclosures do not quantify how much came from term-deposit repricing versus fresh lending.

†Derived as yield on advances minus cost of deposits, using the reported ratios in ^[1].

The clean arithmetic is therefore:

• Deposit repricing/mix: the 5 bps increase in cost of deposits reduced the potential margin benefit.
• Loan yield improvement: the 15 bps rise in yield on advances more than offset that pressure.
• Net spread effect: approximately +10 bps.
• Reported NIM effect: +8 bps in domestic NIM and +6 bps in overall NIM. The difference reflects the fact that NIM is not simply yield on advances less cost of deposits; it also captures other earning assets, overseas operations, funding mix and average-balance timing.

On a YoY basis, the picture was less favourable: cost of deposits rose from 4.99% to 5.18% (+19 bps), while yield on advances rose from 8.78% to 8.92% (+14 bps), implying a 5 bps compression in the simple spread ^[1]. The Q3 FY25 domestic NIM nevertheless rose to 3.57% from 3.49% ^[1], reinforcing that the NIM movement cannot be attributed solely to the deposit-versus-advance spread.

Attribution between existing term-deposit repricing and fresh loan growth: not separately quantifiable from the reported data. Term deposits increased 2.2% QoQ to 433,149, while advances rose 1.6% QoQ to 559,199 ^[2]. However, the bank did not provide the rate reset profile or repricing contribution of the existing term-deposit book, nor the yield on fresh loans versus the seasoned loan book. Accordingly, the defensible conclusion is +10 bps of mechanical spread improvement, but no reported bps split between term-deposit repricing and fresh loan-book growth.

Q3 FY25 fresh slippages totalled Rs 1,004 Crores, with almost all arising from RAM; Corporate contributed only Rs 8 Crores.

The PCR including technical write-offs improved to 98.09% in Q3 FY25 from 95.90% in Q3 FY24, an increase of 219 bps year on year. ^[4] On an excluding-technical-write-off basis, PCR was 93.81% versus 88.68%, implying a wider improvement of 513 bps. ^[3]

Analyst read: asset-quality stress in the quarter was concentrated within RAM, particularly Agriculture and MSME, while Corporate slippages were negligible. The higher PCR provides a substantial provisioning buffer despite that segment concentration. A minor reporting difference exists: management referred to Q3 slippages of Rs 1,016 Crores on the earnings call, versus Rs 1,004 Crores in the detailed NPA movement table; the segment figures above use the internally reconciling table total. ^[5]

Indian Bank’s latest LDR is 82.82% as of 30 September 2026, derived from gross advances of Rs 7.23 lakh Crore divided by total deposits of Rs 8.73 lakh Crore ^[6]. This is:

• 0.20 percentage points above the 82.62% average of the four peers with comparable Q2 FY27 data: Canara Bank, Bank of Baroda, Union Bank and PNB.
• 1.04 percentage points below the 83.86% average when Bank of Maharashtra is also included using its latest reported Q1 FY27 ratio of 88.82%. The latter comparison is directional because Bank of Maharashtra has not yet reported a Q2 ratio in the cited material.

Interpretation: Indian Bank is not a high-LDR outlier within this group. It is close to the same-date peer average, although its ratio has risen from the Q1 FY27 level of 81.06% and is above its FY27 guidance of approximately 80% ^[12]. The Q2 business update also shows advances growing faster than deposits—16.6% versus 12.4% year-on-year—which explains the upward movement in the ratio ^[6].

Indian Bank’s liquidity-management playbook

• Prioritising CASA rather than chasing expensive deposits: Indian Bank is focusing on CASA and selective bulk deposits. In Q2 FY27, domestic CASA was 39.28%, while current-account deposits grew 27.5% year-on-year ^[6]. A higher share of operating deposits provides a more stable and generally lower-cost funding base than relying predominantly on bulk term deposits.
• Using market borrowings instead of expensive short-duration bulk deposits: Management said borrowings were available at approximately 5.00–5.25%, while 30- or 60-day bulk deposits could cost 100–150 bps more. Bulk deposits remained broadly unchanged at around Rs 1.61 lakh Crore between March and June 2026 ^[13]. This supports credit deployment without materially increasing the cost of the deposit franchise.
• Maintaining liquidity through TREPS, the call market and permitted borrowing limits: Management attributed the stable 123% LCR in Q1 FY27 partly to borrowings and said the bank continued using cheaper TREPS and call-market funding, which is repriced daily ^{[14] [15]}. This is a liquidity-buffer strategy, not a way to mechanically reduce the LDR: borrowings can fund asset growth and protect cash liquidity, but they do not increase customer deposits in the LDR denominator.
• Diversifying into FCNR(B) and ECB funding: Indian Bank had raised approximately USD 150 million of FCNR(B) deposits and expected combined FCNR(B) and ECB mobilisation of USD 1.5–2.0 billion, which management estimated could create roughly Rs 18,000 Crores of liquidity ^{[16] [17]}. The bank intends to deploy this liquidity into domestic credit, reducing dependence on incremental domestic bulk deposits, although management acknowledged that the all-in cost may not be materially below domestic deposits ^[17].
• Calibrating asset growth and pricing: Management has indicated that 13–14% overall credit growth is acceptable and that advances could grow around 15% if deposits grow around 13%, provided NIM is protected ^[16]. The bank is also exiting or repricing thinly priced loans and shed approximately Rs 6,000 Crores of such loans sequentially ^[13]. This limits the incentive to pursue volume at uneconomic spreads.

Bottom line: Indian Bank’s LDR is currently around the peer midpoint: marginally above the same-date Q2 peer average, but below the average when Bank of Maharashtra’s higher, older-period ratio is included. The funding strategy is therefore aimed less at lowering the reported LDR immediately and more at making incremental credit growth fundable through CASA mobilisation, selective use of cheaper market borrowings, FCNR(B)/ECB liquidity and disciplined loan pricing.