IndusInd Bank’s stock took a severe hit on Tuesday, plummeting 23% to ₹694 per share, following the revelation of discrepancies in its derivative portfolio during an internal review. The review uncovered a potential negative impact of around 2.35% on the bank’s net worth, amounting to a staggering ₹1,530 crore as of December 2024.
The news has raised concerns over the financial health and stability of one of India’s leading private lenders, sparking widespread analyst downgrades and reduced price targets for the bank. IndusInd Bank’s net worth is now projected to decrease by ₹1,600 crore to ₹2,000 crore, as the financial impact of the discrepancy is absorbed into the bank’s earnings.
Financial Impact and Market Reaction
The discrepancies are related to multi-year derivative transactions, and IndusInd Bank plans to account for the loss in its fourth-quarter earnings or the first quarter of the upcoming fiscal year. The development has not only affected the bank’s net worth but also caused its market capitalization to fall significantly, now standing at ₹70,161 crore. Shares of IndusInd Bank are currently trading below several key moving averages, further adding to investor anxiety.
In the past year, the bank’s stock has declined by a staggering 42.42%, with a 37.24% drop over the last six months. This downward trajectory, coupled with leadership concerns, has created a volatile environment for investors.
CEO Transition and Governance Concerns
Adding to the uncertainty, IndusInd Bank has been embroiled in leadership concerns. While the bank’s board had applied for a three-year extension for CEO Sumant Kathpalia, the Reserve Bank of India only approved a one-year term. This shorter tenure has led analysts, including Nuvama Institutional Equities, to suggest that the period will likely be used to transition to a new CEO. This comes shortly after the bank’s CFO resigned just before the announcement of its Q3FY25 earnings.
External Review and Investor Assurance
In response to the discrepancies, IndusInd Bank has engaged a respected external agency to conduct an independent review and validate the findings. However, the bank has not disclosed the specific nature of the discrepancies yet. Despite this setback, the bank reassured investors that its profitability and capital adequacy remain strong enough to absorb the one-time impact. The final report from the external agency is still awaited and will determine if any further adjustments to the bank’s financial statements are necessary.
IndusInd Bank’s swift action to address the situation and its continued assurance to investors will be critical as it seeks to regain market confidence in the wake of these revelations.
