Shares of IndusInd Bank, a prominent private sector lender in India, plummeted by over 22% on March
IndusInd Bank : 11, 2025, reaching a four-year low. This sharp decline followed the bank’s disclosure of accounting discrepancies in its foreign exchange derivatives portfolio, which are expected to adversely impact its net worth by approximately ₹1,500 crore.
Unveiling the Discrepancies
During an internal review prompted by the Reserve Bank of India’s (RBI) September 2023 guidelines on bond investment categorization and valuation, IndusInd Bank identified underestimations in hedging costs related to past forex transactions. This oversight is anticipated to reduce the bank’s net worth by 2.35% as of December 2024, equating to an estimated ₹1,529.90 crore.
The discrepancies were uncovered between September and October 2024, following the implementation of new fiscal regulations in April 2024. These regulations necessitated a reassessment of the bank’s investment portfolios, during which the accounting gaps in certain forex derivative transactions came to light.
Market Reaction and Share Price Impact
The revelation of these discrepancies led to a significant sell-off in IndusInd Bank’s shares. The stock experienced its steepest single-session fall since March 2020, closing at ₹720.35 on the National Stock Exchange (NSE), down 20.13% from the previous close. This decline erased over ₹14,000 crore in market capitalization, marking the stock’s lowest level since November 2020.
Analyst Perspectives and Target Price Revisions
The accounting discrepancies have raised concerns about the bank’s internal controls and financial oversight. Analysts have criticized the bank’s internal controls and anticipate a significant impact on the 2024-25 earnings, with potential stock derating.
Similarly, Nuvama Institutional Equities downgraded the stock to ‘reduce’, cutting its target price to ₹750 per share. The brokerage expressed discomfort over the timeline of events, including the recent resignation of the Chief Financial Officer (CFO) before the third-quarter earnings and the CEO receiving only a one-year extension instead of the expected three years. They believe these factors, combined with the derivatives-induced dislocation, could impact the bank’s credibility and earnings.
Financial Ratios and Performance Metrics
To provide a clearer picture of IndusInd Bank’s financial health, here are some key financial ratios and performance metrics:
| Metric | Value |
|---|---|
| Net Worth (Dec 2024) | ₹65,102 crore |
| Estimated Impact | ₹1,529.90 crore |
| Net Profit (9M FY25) | ₹6,628 crore |
| Capital Adequacy Ratio | 14.8% |
| Return on Assets | 1.5% |
| Return on Equity | 13.2% |
| Gross NPA Ratio | 2.11% |
| Net NPA Ratio | 0.61% |
| Provision Coverage Ratio | 72% |
| Cost-to-Income Ratio | 45% |
Note: The above figures are based on the latest available data as of December 2024.
Leadership and Governance Concerns
The bank’s leadership has also come under scrutiny. The RBI recently approved only a one-year extension for CEO Sumant Kathpalia, despite the bank’s request for a three-year term. This decision has raised questions about the central bank’s confidence in the current leadership. Additionally, the resignation of the CFO just before the third-quarter earnings adds to the governance concerns surrounding the bank.
Future Outlook and Investor Sentiment
The discovery of these discrepancies has undoubtedly shaken investor confidence. The bank has appointed an external agency to independently review and validate the internal findings. The final report is awaited, and the bank has stated that it will appropriately consider any resultant impact in its financial statements.
While the bank maintains that its profitability and capital adequacy remain healthy enough to absorb this one-time impact, the market reaction suggests a cautious outlook. Investors and analysts will be closely monitoring the bank’s forthcoming financial results and the findings of the external review to assess the full extent of the impact and the measures taken to strengthen internal controls.
Q&A Section
Q1: What led to the 22% drop in IndusInd Bank’s share price?
A1: The sharp decline was due to the bank’s disclosure of accounting discrepancies in its foreign exchange derivatives portfolio, leading to an anticipated adverse impact of approximately ₹1,500 crore on its net worth.
Q2: How were these discrepancies discovered?
A2: The discrepancies were identified during an internal review prompted by the RBI’s September 2023 guidelines on bond investment categorization and valuation.
Q3: What is the estimated financial impact of these discrepancies?
A3: The bank estimates a reduction in its net worth by 2.35% as of December 2024, equating to approximately ₹1,529.90 crore.
Q4: How have analysts reacted to this development?
A4: Analysts have raised concerns about the bank’s internal controls and have revised their target prices downward. For instance, Kotak Institutional Equities downgraded the stock to ‘reduce’ with a target price of ₹850, while Nuvama Institutional Equities set a target price of ₹750.
Q5: What steps is the bank taking to address this issue?
A5: IndusInd Bank has appointed an external agency to independently review and validate the internal findings. The final report is awaited, and the bank will consider any resultant impact in its financial statements.
Q6: Are there concerns about the bank’s leadership?
A6:
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.