IndusInd Bank Shares Plunge 25% Amid Derivative Discrepancies, Potential ₹1,500 Crore Profit Hit

Brokerages Lower Target Prices as CEO Tenure Cut, CFO Resigns

Shares of IndusInd Bank Ltd. witnessed a steep 25% decline on March 11, following the disclosure of discrepancies in its derivative portfolio, which could result in a ₹1,500 crore impact on its profitability. The sell-off comes amid corporate governance concerns, including the resignation of the CFO and the Reserve Bank of India (RBI) granting only a one-year extension to CEO Sumant Kathpalia, instead of the expected three-year term.

Key Financial Impact: Net Worth and Profitability at Risk

IndusInd Bank, in a filing on March 10, stated that an internal review of derivative portfolio balances revealed an adverse impact of 2.35% on its net worth. The final financial damage could be higher, as the bank has appointed an external agency to conduct an independent review.

During an analyst call, CEO Sumant Kathpalia acknowledged that the losses from these discrepancies would have to be accounted for in the profit and loss (P&L) statement, impacting the bank’s earnings for Q4 FY25.

According to Nuvama Institutional Equities, the profit hit will primarily reflect in the Net Interest Income (NII) for Q4 FY25E, with a final report expected from the external auditor by the end of March 2025.

Stock Market Reaction: IndusInd Bank in Freefall

At 9:50 AM on March 11, IndusInd Bank’s shares were trading at ₹720.35 on the National Stock Exchange (NSE), reflecting a 20% drop. The stock later extended its losses, ending the session with a 25% decline, as investors reacted negatively to the unfolding crisis.

The sharp correction follows the broader banking sector sell-off and concerns over corporate governance issues within the bank.

Brokerage Reactions: Target Prices Slashed, Credibility at Stake

Several leading brokerages have adjusted their outlook on IndusInd Bank, citing corporate instability and financial uncertainty.

Brokerage Downgrades and Target Price Revisions

• Nuvama Institutional Equities: Downgraded the stock to ‘Reduce’, cutting the target price to ₹750 per share.
• IIFL Securities: Maintained an ‘Add’ rating but reduced the target price from ₹970 to ₹910 per share.
• Other brokerage firms are expected to re-evaluate their stance as more clarity emerges from the external audit report.

Analysts at Nuvama expressed concerns over the timing of recent corporate events, including:

• The Chief Financial Officer (CFO) resigning just before the Q3 FY25 earnings report.
• The CEO receiving only a one-year extension instead of the customary three years.
• The derivatives-related financial hit raising questions about internal risk management and governance.

CEO’s Comments Raise RBI Governance Concerns

During an analyst call on March 10, CEO Sumant Kathpalia stated that the RBI was “not comfortable” with his leadership skills in running IndusInd Bank.

This remark follows the RBI’s decision to approve his reappointment for just one year, rather than the three-year tenure initially requested by the bank.

The development has sparked speculation regarding the RBI’s level of confidence in IndusInd Bank’s governance and risk management practices, with market experts awaiting further regulatory commentary.

Capital Adequacy and Growth Concerns

IndusInd Bank’s microfinance loan slippages are expected to rise further on a quarter-on-quarter (QoQ) basis, while Net Interest Margins (NIMs) are likely to contract in Q4 FY25, according to IIFL Securities.

Despite the financial setback, analysts estimate a Common Equity Tier 1 (CET1) capital ratio hit of ~35 basis points. However, with a proforma CET1 ratio of 14.8%, the bank is not expected to require an immediate capital raise.

Next Steps: External Review and Market Reactions

• The external audit report, expected by March-end, will be a key determinant of IndusInd Bank’s future stock performance.
• Market analysts and regulators will closely monitor the bank’s risk management processes and corporate governance measures.
• Investors await Q4 FY25 earnings to assess the extent of the financial hit and whether it signals deeper structural weaknesses.