Kathpalia said the external agency review is likely to be completed by the fourth quarter of the current financial year. He also estimated that its impact on the bank’s net worth could be around 2.35% by the December 2025 quarter.
IndusInd Bank said in its filing on March 10 that based on an internal review of the derivatives portfolio, there could be a potential impact of about 2.35% on the bank’s net worth.
Indusind Bank shares fall sharply, investors shocked
IndusInd Bank shares witnessed a massive sell-off on Tuesday, March 11, 2025. Analysts downgraded the rating due to imbalances in the bank’s derivative portfolio and a possible decline in income, which increased investor concerns.
Due to this decline, IndusInd Bank’s stock fell 25.9% to Rs 667, its lowest level since November 2020. However, by 12:45 pm, it showed a slight recovery and was trading with a decline of 25.2%. On the other hand, the BSE Sensex was down only 0.14% at that time.
Analysts attributed this decline to negative events related to the bank. For example, Nuvama Institutional Equities has reduced its rating from ‘hold’ to ‘low’, fearing an impact on the ‘credibility’ of the bank.
Difficult year for Indusind Bank, shares fall sharply
IndusInd Bank has faced many challenges in the current financial year 2024-25. The bank had to face stress in the microfinance sector, while the resignation of the Chief Financial Officer (CFO) ahead of the December quarter results also raised investors’ concerns. Apart from this, the term of the current Chief Executive Officer (CEO) was extended for only one year instead of three years, raising questions about the long-term stability of the bank. Now, the possibility of a possible impact on the bank’s net worth has increased due to the discrepancy in the derivative portfolio.
Analysts at the brokerage house say that the recent disclosure of the bank’s derivative position may raise more concerns than the disclosure of bad loans in the past dates. Keeping this in mind, the target price for IndusInd Bank has been reduced from Rs 1,115 to Rs 750.
Big blow to IndusInd Bank, difficulties increased due to derivative anomaly and MFI stress
India’s fifth largest private bank, IndusInd Bank, has faced many challenges in the current financial year. On Monday, the bank told shareholders that an internal review has revealed some anomalies. The bank found that foreign exchange derivative/swap transactions made before April 2024 were not properly accounted for. However, the related treasury gains were recognized in the profit and loss (P&L) account.
**RBI restrictions and potential losses**
The Reserve Bank of India (RBI) banned internal trading/hedging of banks from April 1, 2024, after which the bank stopped this practice. According to the bank’s internal committee, this anomaly may cause the bank to suffer a pre-tax loss of Rs 2,100 crore and a post-tax loss of about Rs 1,580 crore, which is expected to impact the net worth by 2.35%.
Further, the bank said that the shock of this loss as well as accelerated provisions on the microfinance (MFI) portfolio may lead to a loss in the January-March quarter (Q4FY25). The bank has appointed an external auditor to confirm the issue, and the RBI has also taken cognizance of it.
**Analysts react and share price target cut**
The bank has assured that it will share all the information with full transparency after the audit is completed. However, analysts believe that frequent external audits may affect the credibility and valuation of the bank.
– **MK Global Financial Services** has reduced the target price of IndusInd Bank stock from Rs 1,125 to Rs 875. He said that due to recent events and increased stress in MFIs, the bank’s stock will remain under pressure.
– **Kotak Institutional Equities** has also downgraded the stock to ‘Reduce’ from ‘Buy’ and cut the target price to Rs 850 from Rs 1,400. They have cut their FY25 earnings forecast by 25%.
– **Motilal Oswal Financial Services** has raised the target price of the stock to Rs 925 while rating it ‘Neutral’ and expects pressure in the near future.
**MFI stress and strategy ahead**
Apart from this derivative portfolio mismatch, the bank has concerns about microfinance stress and rising credit costs in Q4FY25. However, the management expects the microfinance portfolio stress to start easing in Q1FY26, while analysts expect the improvement to start showing from Q2FY26.
Meanwhile, the bank’s board is speeding up the process of evaluating internal and external candidates to succeed the CEO to allay investors’ concerns and restore confidence in its operations.
