IndusInd Bank’s Accounting Discrepancy: A Risk for Depositors?

Mumbai: IndusInd Bank shares crashed by 20% on Tuesday, March 11, following an internal review that projected a significant adverse impact of 2.35% on its net worth (as of December 2024). The banking stock hit a 52-week low of ₹657.70, erasing approximately ₹14,000 crore from its market capitalization.

IndusInd Bank Stock Hits 52-Week Low

The bank’s stock took a severe hit, falling 26.96% on NSE and trading at ₹658.00 on BSE at 3:17 PM. This marks the fifth consecutive day of decline, making it the worst-performing stock on the 30-share BSE Sensex.

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Accounting Discrepancies Identified

In a regulatory filing on Monday, IndusInd Bank disclosed that an internal review of its derivatives portfolio revealed discrepancies in account balances. The detailed assessment estimated a negative impact of approximately ₹2,100 crore on the bank’s net worth.

Key Highlights:

• The review was conducted per RBI’s guidelines on investment portfolios, issued in September 2023.
• The discrepancies spanned over 5-7 years till March 31, 2024.
• The bank aims to absorb the ₹2,100 crore loss in either Q4 FY24 or Q1 FY26.
• An external auditor is currently reviewing the findings, with a report expected by March 2025.

Impact on Bank’s Profitability & Market Outlook

Despite the financial hit, IndusInd Bank assured investors that its profitability and capital adequacy remain strong enough to handle the one-time impact. However, the uncertainty around future earnings and leadership transition has triggered multiple target price downgrades from leading brokerage firms.

Brokerage Reactions:

• Citi: Stated that the bank will face a “litmus test” in selecting a successor for the CEO position.
• PL Capital (Prabhudas Lilladher): Downgraded IndusInd Bank from ‘Buy’ to ‘Hold’, citing concerns over earnings quality and leadership transition.
• Analysts noted that the bank’s borrowing costs might increase due to heightened risk perception.

CEO Sumant Kathpalia Gets Only One-Year Extension

The crisis follows RBI’s decision to grant only a one-year extension to CEO Sumant Kathpalia instead of a longer tenure. This decision raises speculation about leadership stability, further affecting investor sentiment.

IndusInd Bank’s Next Steps

With an external audit underway and RBI monitoring the situation, IndusInd Bank will need to restore investor confidence through:

1. Clear transparency regarding the financial impact and corrective measures.
2. Strong succession planning to ensure leadership stability.
3. Regulatory compliance and operational improvements to prevent future discrepancies.