IndusInd Bank’s shares traded in the negative territory after the RBI decided to extend existing CEO Sumant Kathpalia’s tenture by just one year, instead of the three years the bank had asked for
IndusInd Bank shares fell as much as 6 per cent on Monday as uncertainty arose about the private bank’s leadership after the Reserve Bank of India (RBI) granted the current chief executive officer (CEO) Sumant Kathpalia only a one-year extension instead of the three years the bank had requested.
This is the second time that Kathpalia has received a lower tenure than what was proposed by the lenders' board.
The private lender’s shares in Monday’s session tumbled to a 52-week low of Rs 881.10 per share on the National Stock Exchange (NSE), falling 5.94 per cent from the previous close. Over the past month, it has cascaded more than 15 per cent.
From its all-time high of Rs 1,576.35, the stock has corrected over 44 per cent.
According to analysts at Elara Capital, this raises uncertainty in leadership and feeds into an ambiguous environment about the bank's strategic direction. It also feeds into concerns related to the exit of chief financial officer (CFO) Gobind Jain in January this year and attrition at the leadership level in recent months.
"Given the extension is only for a year, the transition (internal or external candidate) and strategic outcome post a new CEO would need to be monitored. In addition, there is a likelihood of transitions in key management positions, which may take place in the next couple of years, creating further uncertainty. We believe recovery could be elongated," said Elara Capital.
IIFL Securities believes that the one-year extension is to give "enough time" to the board to find a replacement of Kathpalia, and should create leadership uncertainty in the interim.
Analysts at Emkay Global also concur that the one-year extension impedes strategic continuity but provides the board time to identify a replacement, likely an external private banker. “This short extension signals dissatisfaction with progress on conditions set during the previous term, especially concerning the microfinance institution (MFI) portfolio and elevated non-performing assets (NPAs). A leadership transition could further complicate matters, given ongoing growth and asset quality pressures,” said Emkay.
Nuvama analysts also believe that an external CEO is likely. "This also creates additional uncertainty, particularly regarding earnings visibility, which is already weakened by challenges in the MFI cycle," said Nuvama.