(Reuters) -Shares of India's IndusInd Bank tumbled 15% on Friday, set for their worst day in over four years after the lender warned it would miss its full-year loan growth target, becoming the latest lender to flag the stress in microfinance loans.

The bank also posted an unexpected drop in second-quarter profit due to a jump in bad loans in the microfinance business, which are collateral-free loans to borrowers with annual income up to 300,000 rupees.

"Obviously, I don't think we should be able to do 18% to 22% (loan growth for the year). I think, given what has happened, we have to watch quarter to quarter," CEO Sumant Kathpalia said. Its loan growth was 13%-15% in the first two fiscal quarters.

IndusInd's stock slumped to its lowest since May 2023 and dragged banking stocks down 0.8%. It was the biggest laggard on the blue-chip Nifty 50 index.

Over the weekend, Kotak Mahindra Bank and RBL Bank had also reported deterioration in asset quality and sharp jumps in bad loans due to stress in credit cards and microfinance loans. They expect the pressure to linger.

"As microfinance stress is likely to be high even in Q3 ... we reckon the stock shall underperform even after the sharp price correction," Nuvama Institutional Equities said, cutting their rating on the stock to "hold" from "neutral".

Indeed, the 32% slide in IndusInd's stock so far this year is the steepest on the Nifty 50, which has gained 12.3% in the same period.

While at least eight of the 41 analysts covering the stock cut their price targets, their average still remains the equivalent of "buy", according to LSEG data.

(Reporting by Nandan Mandayam in Bengaluru; Editing by Savio D'Souza)