Bank Assures Stability Despite Market Setback and Regulatory Scrutiny
IndusInd Bank Shares Plunge 27% Amid Portfolio Loss Concerns
Accounting Discrepancy Triggers Market Panic
Mumbai: Shares of IndusInd Bank plummeted over 27% on Tuesday after the bank disclosed discrepancies in its derivatives portfolio, causing panic among investors and triggering heavy sell-offs. The stock, which reached an intraday high of ₹810.45, plunged to a low of ₹649 before closing at ₹655.95 on the NSE. This represents a sharp decline of ₹244.55 (27.16%) in a single day. Consequently, the bank’s market capitalization eroded by ₹18,000 crore, dropping to ₹51,100 crore.
Concerns Over Weak Internal Controls and Financial Impact
Analysts have raised concerns about the bank’s internal controls and governance following the disclosure. An internal review by IndusInd Bank found that past forex transactions were miscalculated due to lower hedging costs, leading to an estimated ₹1,530 crore impact on the bank’s net worth.
This revelation caused IndusInd Bank’s stock to fall to its lowest level since November 2020, with analysts pointing to broader governance concerns. Additionally, investors were alarmed by the Reserve Bank of India (RBI)’s decision to extend the CEO’s tenure for only one year instead of the usual three, signaling potential regulatory concerns.
Regulatory Scrutiny and Bank’s Response
The issue surfaced between September and October 2024 after the RBI introduced new derivative portfolio management guidelines. Following a board meeting on Monday, the bank formally reported the discrepancy to stock exchanges.
To address investor concerns, IndusInd Bank’s promoter, Ashok Hinduja, reassured stakeholders about the bank’s strong financial standing, stating that if necessary, the promoters are ready to inject fresh capital. He also confirmed that the bank is awaiting RBI approval to increase promoter shareholding from 15% to 26%.
Despite this setback, IndusInd Bank maintains that its profitability and capital adequacy remain strong, and it can absorb the one-time financial impact. However, analysts warn that concerns over weak internal controls could lead to a credit rating downgrade.
