IndusInd Bank Shares Crash 27 Per Cent After 'Discrepancies' Found In The Lender's Derivatives Portfolio

Shares of IndusInd Bank, crashed 27.16 per cent on Tuesday, March 11 to sink to a new 52-week low of Rs 649 per share. This rout came after the bank disclosed that some “discrepancies” were found after an internal review of its derivatives portfolio.  

In a filing dated March 10, the lender said, “During internal review of processes relating to Other Asset and Other Liability accounts of the derivative portfolio…, Bank noted some discrepancies in these account balances.”

Impact Of This ‘Discrepancy’: Rs 1,530 crore

The bank said that its detailed internal review has estimated an adverse impact of approximately 2.35 per cent of the bank’s net worth as of December 2024. The bank's net worth stood at Rs 65,102 crore, as of December 2024. That means the bank’s net worth is expected to decline by Rs 1,530 crore.

“While the financial impact of the discrepancy might be minimal, the issue has raised concerns about credibility. Trust is a crucial part of any investment thesis, and it may take some time to rebuild this trust and make the stock investable again,” analysts at Kotak Institutional Equities noted.

"On the positive side, if there is a sharp improvement in financials, particularly with better asset-quality performance in the MFI portfolio, it could help mitigate the current concerns. In addition, if there are fewer worries on deposit growth and adequate liquidity available for growth, investors might eventually view this event as a less significant error," the brokerage firm said.

External Agency To Review Findings

The bank has also, in parallel, appointed a “reputed” external agency to independently review and validate the internal findings, it informed via the filing.

The final report from the external agency is still awaited, after which IndusInd Bank will assess and determine any resulting impact on its financial statements. However, the bank said, its profitability and capital adequacy remain “healthy to absorb this one-time impact.”

CEO Sumant Kathpalia’s 1-Year Tenure Extension

IndusInd Bank’s shares were already under fire 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.

As a result, the private lender’s shares in March 10’s session tumbled more than 5 per cent.

Analysts at Elara Capital said, 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, said Elara Capital.

"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," the brokerage firm said.

From its 52-week high of Rs 1,576.35, the stock has corrected 58.83 per cent, the largest correction any Sensex or Nifty 50 stock saw during this ongoing market downturn.