The estimated hit of about ₹1,500 crore to the balance sheet due to discrepancies in the accounting of derivatives portfolio, shorter tenure approved by the regulator to the CEO, and concerns on asset quality of the microfinance portfolio saw IndusInd Bank’s (IIB) stock take a beating on Tuesday.
The bank’s stock lost more than a quarter of its value, sinking 27.17 per cent (or down ₹244.65) to close at ₹655.95 apiece on BSE against the previous close of ₹900.60.
Under pressure
Even as the bank’s stock came under unprecedented selling pressure due to the aforementioned negative developments, the promoters – Indusind International Holdings Ltd (IIHL) and Indusind Ltd (which collectively hold 16.29 per cent stake) swung into action, requesting shareholders not to panic. Further, reinforcing their commitment to the bank, they emphasised that they can increase their stake.
Ashok Hinduja, Chairman, IIHL, told TV channels that: “The estimated impact of ₹1,500 crore is not much. These are derivatives where technical problems arose which we understand. The management will work on the issue and our message to shareholders is to not get panicked around this situation.
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“We understand banking is a business of trust and investors will ask why they weren’t informed about the issue earlier. On the contrary, it is the bank’s own management which flagged the issues and not auditors, which is appreciated.”
As far as promoters are concerned, Hinduja underscored that their full support and trust to institution will always be there. It has been more than three decades since this bank came into existence. The bank has seen 3-4 adverse cycle of global financial crisis, Covid, etc.
“We have always supported the bank irrespective of pricing. We invested in the capital raise by the bank in the last round. As per our estimate, the CRAR of bank will be over 15 per cent, sharply above regulatory requirement, and irrespective of this, as and when capital is required, promoters, shareholders, HNIs, global shareholders, are pushing the bank to come for more capital raise as they are more focused on long term growth story of the bank,” he said.
Hinduja emphasised that the promoters have got RBI’s in-principle approval letter for increasing their stake in IIB from 15 per cent to 26 per cent and they have started the process, with the ball being in the regulator’s court now.
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Once promoters get RBI’s final approval, they will immediately inject capital in the bank.
In a disclosure last evening, IIB said during an internal review of processes relating to other asset and other liability accounts of its derivative portfolio, including accounting of derivatives, applicable from April 1, 2024, it noted some discrepancies in these account balances.
Internal review
The bank’s detailed internal review estimated an adverse impact of approximately 2.35 per cent of bank’s net worth (of ₹65,102 crore) as of December 2024. The bank also, in parallel, appointed an external agency to independently review and validate the internal findings.
IIB said a final report of the external agency is awaited, basis which it will appropriately consider any resultant impact in its financial statements. Further, the Bank’s profitability and capital adequacy remains healthy to absorb this one-time impact.
The RBI extended the current MD & CEO Sumant Kathpalia’s tenure by a year with effect from March 24, 2025 till March 23, 2026 despite the bank’s board approving his re-appointment for three years, with effect from March 24, 2025 up to March 23, 2028.