IndusInd Bank Shares Plunge 20% Amid Derivatives Portfolio Discrepancies

Key Highlights:

• Stock Crash: IndusInd Bank's shares crashed 20% on March 11 during the opening session following reports of discrepancies in its derivatives portfolio.

• Financial Impact: The bank estimates a 2.35% hit on its net worth, which could potentially affect profits by around ₹1,500 crore.

• Profit Hit: The financial impact is likely to be routed through the Profit & Loss (P&L) statement, as confirmed by CEO Sumant Kathpalia.

Timeline of Events:

• Internal Review: The discrepancies were discovered during an internal review of the bank's derivative portfolio as per RBI's September 2023 guidelines on investment portfolios.

• External Audit: IndusInd Bank has appointed a reputed external agency to conduct an independent review. The report is expected by the end of March 2025.

Leadership Concerns:

• CFO Resignation: The Chief Financial Officer resigned just before Q3FY25 earnings.

• CEO Term Reduction: The RBI approved Sumant Kathpalia's reappointment as CEO & MD for only one year instead of the requested three years.

• Kathpalia remarked that the RBI was "not comfortable" with his leadership.

Market Reaction:

• At 9:50 AM on March 11, IndusInd Bank shares were trading at ₹720.35 on the NSE, marking a 20% decline.

Brokerage Insights:

• Nuvama Institutional Equities:

  • Downgraded IndusInd Bank to 'reduce'.

  • Revised the target price to ₹750.

  • Expressed concerns over the CFO resignation, CEO term reduction, and potential financial dislocation.

• IIFL Securities:

  • Maintained an 'add' rating but cut its target price to ₹910 from ₹970.

  • Anticipates a likely Q4FY25 loss due to the profit hit.

Future Outlook:

• Microfinance Slippages: Expected to rise further in Q4FY25.

• Net Interest Margins (NIMs): Likely to contract.

• Capital Position: Despite the estimated 35bps CET1 hit, the proforma CET1 ratio of 14.8% should prevent the need for a capital raise.

Conclusion:

The combination of financial concerns, leadership issues, and stock downgrades has raised investor concerns about IndusInd Bank’s future stability. With an external review underway, the market awaits further clarity on the actual financial impact in the upcoming quarters.

Disclosure:

This article is for informational purposes only and should not be considered as financial advice. Investors are advised to conduct their own research and consult with financial advisors before making investment decisions.