Whats wrong with IndusInd Bank

What is wrong with IndusInd Bank

IndusInd Bank had on Monday disclosed that an accounting miss could wipe about Rs 2,100 crore from its net worth after a change in RBI norms.

IndusInd Bank bled on the bourses on Tuesday, with its stock logging its biggest-ever decline, falling More then 27 % single day  This stock reaction followed the Mumbai-headquartered lender’s disclosure on Monday that an accounting miss could wipe about Rs 2,100 crore from its net worth. The issue was spread over multiple years and related to transactions in the derivatives segment. But the bank’s Chief Executive Officer said he expects the private lender to clock a profit in the March quarter — and the entire FY25 — despite the hit.

What’s the issue at IndusInd Bank

In 2023, the RBI directed some changes regarding the investment portfolio of banks which kicked in from April 1, 2024. Earlier, banks’ asset liability management and treasury desks could do internal swaps, where one cash flow can be exchanged for another. If such a deal is terminated ahead of schedule, the profit gets accounted for, not the losses. But IndusInd Bank underestimated the hedging costs related to such forex transactions over the past five-seven years. An internal review by the bank brought this to light. The hit to the net worth from the accounting gap is likely to be 2.35 per cent of the bank’s net worth, or about Rs 2,100 crore.

Is this the only worry for IndusInd Bank?

Tuesday’s stock decline came after a nearly 6 per cent intraday fall on Monday after the bank’s current CEO, Sumant Kathpalia, received only a 1-year extension from the Reserve Bank of India (RBI) as opposed to the 3 years recommended by the bank’s board. Weak earnings in the quarter have added to the lender’s woes. Its net profit fell 39 per cent year-on-year in the third quarter and the non-performing assets on its books rose

The stock ended the day at its lowest level since November 2020 on Tuesday and IndusInd Bank’s market capitalisation cracked by $2.18 billion

What is IndusInd Bank doing?
The bank has roped in an external agency to independently review and validate the internal findings. “A final report of the external agency is awaited and basis which the bank will appropriately consider any resultant impact on its financial statements,” IndusInd Bank said.

The bank expects the impact only in the quarter ended March 2025. After that it should be “business as usual” for the bank, Reuters quoted CEO Sumant Kathpalia as saying.

Promoter to the rescue
IndusInd Bank is backed by the Hinduja group. Ashok Hinduja on Tuesday sought to assuage liquidity concerns saying he was ready to infuse funds, if required. “Shareholders shouldn’t panic. These are normal routine problems,” he told the media.

But CEO still expects to clock profit
Kathpalia, on the other hand, said IndusInd Bank will report a profit in the January-March quarter and the full financial year 2025 (FY25).

IndusInd Bank CEO Kathpalia said that the lender’s profitability and capital adequacy are healthy enough to absorb this one-time impact and they would like to take the hit through its profit and loss account. “The issue was identified by the bank… The bank has enough reserves and capital to manage this,” he added.

Analysts, though, are worried and said the revelations have set alarm bells ringing about internal controls at the private bank. Analysts at Macquarie said in a note that the issue “raises questions on internal processes”, 

There are many concern list is long above all information is from Reliable sources - BS/FT/RTRS/ MD can call  

Anyways will update if anything is there 

Till then keep reading 

Wiseinvesting 

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