IndusInd Bank suffered a massive blow on Tuesday as its shares plummeted 25%, hitting a 52-week low of Rs 674.55. The steep drop came after the bank disclosed discrepancies in its derivatives accounting, sparking concerns among investors and analysts. This marks the steepest fall in IndusInd Bank’s stock since March 2020.
With analysts warning of a possible earnings hit and raising concerns about weak internal controls, the stock has taken a severe beating. But what exactly happened, and what does it mean for IndusInd Bank and its investors? ET explains the whole discrepancy saga of IndusInd Bank shares in 5Ws and 1H.
What happened?
IndusInd Bank reported accounting discrepancies in its derivatives portfolio, leading to a 20% crash in its stock price. An internal review found that the bank had underestimated hedging costs related to past forex transactions. This revelation has forced the bank to acknowledge a potential impact of Rs 1,600-2,000 crore on its net worth, equivalent to 2.35 per cent as of December 2024.
Following this, investors reacted sharply, cautilizing the bank’s shares to hit their lowest level since November 2020. Analysts have also raised concerns about weak internal controls and governance issues within the bank.
Also Read: IndusInd Bank shares hit by downgrades, tarreceive price cuts. What investors should doWho is affected?
The largegest impact is on IndusInd Bank and its investors. The bank’s stock has already lost 42% over the past year. Analysts believe that the findings raise concerns about the bank’s internal controls and compliance measures.When did this issue emerge?
The discrepancies were identified between September and October 2024, following the Reserve Bank of India’s (RBI) updated master directions on derivatives. The bank disclosed the issue in its exmodify filing on March 10, Monday, after a board meeting.
Further, the stock reacted on Monday, too, finishing nearly 4 per cent lower after the Reserve Bank of India’s (RBI) decision to extfinish the incumbent CEO’s term by just one year against three years that was sought by India’s fifth largest private lfinisher.
Also Read: Indian stocks see attractive, valuations cheapest since Covid: Morgan Stanley
Where is the impact visible?
Apart from IndusInd Bank’s stock crash, the Indian banking sector also faced minor setbacks. The Nifty Bank index fell 0.7%, while the broader Nifty 50 declined by 0.27%. The issue could also affect investor confidence in banking stocks, particularly regarding risk management practices.
Why did IndusInd Bank face this issue?
The discrepancies stem from past forex transactions where the bank underestimated hedging costs. This led to an incorrect valuation in its accounts. The issue is linked to compliance with RBI’s new guidelines on derivatives portfolio management.
How is IndusInd Bank responding?
The bank has launched a detailed internal review and appointed an external agency to validate its findings. It has assured investors that its profitability and capital adequacy remain strong enough to absorb the one-time impact. The loss will be accounted for in either Q4 FY25 or Q1 FY26.
What’s next?
Analysts warn that the stock may face further de-rating due to concerns over weak internal controls. Emkay Global has downgraded IndusInd Bank to ‘Add’ from ‘Buy’ and slashed its tarreceive price by 22% to Rs 875. Meanwhile, Nuvama downgraded IndusInd Bank to ‘Reduce’ from ‘Hold’ and cut its tarreceive price to Rs 750. Motilal Oswal downgraded IndusInd Bank to ‘Neutral’ with a revised tarreceive price of Rs 925, down from an earlier estimate.
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