Why IndusInd Bank shares tank over 27% on the bourses

IndusInd Bank on Tuesday fire fought the fallout of a Rs 2,100 crore discrepancy in accounting, saying it has enough reserves and capital to cover for it, but the management’s assurance failed to arrest the free fall of shares which tanked over 27 per cent on the bourses.

Photograph: Anushree Fadnavis/Reuters

IndusInd Bank CEO and managing director Sumant Kathpalia said that the accounting lapse was noted around September-October last year and the bank gave a preliminary update to the RBI about this last week.

The final number will be known after the external agency, which the bank has appointed, finalises its report by early April.

In a stock exchange filing, private sector lender IndusInd Bank on Monday disclosed that the bank has noted some discrepancies in its derivatives portfolio which could have an adverse impact of about 2.35 per cent of the bank’s net worth as of December 2024 as per its internal review.

Analysts peg the discrepancy at Rs 2,100 crore in absolute terms.

The bank has, in parallel, appointed an external agency to independently review and validate the internal findings.

“The bank’s profitability and capital adequacy remain healthy to absorb this one-time impact.

“The issue was identified by the bank… The bank has enough reserves and capital to manage this…,” Katpalia said.

Shares of IndusInd Bank nosedived 27.17 per cent to close at Rs 655.95 on the BSE.

During the day’s trade, the stock had hit its 1 year low of Rs 649 a piece, down 28 per cent over Monday’s closing price of Rs 900.

In an analyst call late on Monday night, Kathpalia said that the discrepancy in the derivative portfolio has been accumulated in the book over a period of 5-7 years prior to April 1, 2024.

The discrepancy in IndusInd Bank’s treasury business went unnoticed despite multiple audits like that of internal, statutory, and compliance, as well as by the RBI.

He said the bank started reviewing its internal trade book after the RBI circular in September 2023 which mandated that internal trade in derivatives were to be discontinued from April 1, 2024.

“..We started observing discrepancies in our (derivatives) business in October, and then we hired external agency to review our business.

“That is why we are comfortable that by March end or early April, we (external agency report) should be able to identify the gaps,” Katpalia said.

Katpalia said that IndusInd bank had given a “preliminary update” about this discrepancy to the banking regulator RBI last week.

Asked in the analyst call as to whether this discrepancy has had a bearing on his re-appointment as MD & CEO, Katpalia said, “Of course this would have a bearing because they were aware of the issue.”

The RBI last week approved only one year extension to Katpalia till March 23, 2026, as against three years proposed by the bank’s board.

“I don’t know what’s the rationale for them to give me 1 year. But I think they are uncomfortable with the way my leadership skills of running the bank is and we have to respect that.

“This is a litmus test for the bank, from a succession point we see how to take the bank forward.

“I don’t think the BAU (business as usual) of the bank will suffer, I don’t think the growth agenda will get off the track,” Katpalia said.