IndusInd Bank shares plummet 27% after revealing a forex derivative discrepancy, impacting net worth by ₹1,530 crore and triggering analyst downgrades
Mumbai: The country's fifth largest private lender IndusInd Bank saw its shares plummet nearly 27 per cent on Tuesday after it reported a massive discrepancy in the forex derivative portfolio which could lead to an adverse impact on its net worth by Rs 1,530 crore, inviting downgrades from analysts and shaking investor confidence. The discrepancy, spanning over 5 years, is expected to reduce the bank’s net worth by 2.35 per cent as of December 2024, according to its exchange filing.
Further, IndusInd Bank said that it shall take the hit through profit and loss (P&L) which, coupled with accelerated provisions on the micro-finance portfolio, shall push the bank into losses during the January to March quarter (Q4) of the current financial year. The bank has appointed an external auditor to confirm the actual impact. The RBI, it added, is aware of the issue.
The stock of the lender ended 27.17 per cent lower on the BSE at Rs 655.95, after hitting a four-year low of Rs 649. Amid huge selling pressure, the stock entered the oversold zone with its Relative Strength Index slipping to 27.8 in the current session. On the NSE, it slipped 27.06 per cent to Rs 656.80. The stock has experienced a steep fall over 58 per cent from the peak of Rs 1,576.35 on the NSE.
Investor wealth shrank by Rs 19,059 crore on BSE. Market cap of the bank fell to Rs 51,102 crore against Rs 70,161 crore in the previous session. The stock also dragged the bank indices, the Nifty Private Bank index declined 1.38 per cent to 23,817.20 and Nifty Bank index dropped 0.75 per cent to 47,853.95.
In an interview to a news channel, Sumant Kathpalia, MD & CEO, IndusInd Bank, said that the bank will report net profit for the current quarter (January-March) as well as for the full financial year, despite the hit on the bottom line due to discrepancies discovered in the derivative portfolio.
Addressing investor concerns, IndusInd International Holdings Ltd (IIHL) Chairman Ashok Hinduja said that no margin calls had been triggered on pledged holdings so far and that the promoter group had strong financial backing to expand its stake in the bank once regulatory approvals were secured.
Bankers do not expect deposit mobilization to be impacted due to the IndusInd issue. The managing director of a public sector bank said, “It appears to be more of inadequacies in risk management of forex exposures rather than reporting issues. So in my view there is nothing for public sector banks to worry about deposits on account of this.”
However, according to most analysts, developments at IndusInd are a big worry because a negative derivatives’ disclosure has the potential to unnerve investors more than a back-dated non-performing loans (NPL) disclosure.
Prakhar Agarwal, analyst at Elara Capital, said, “We expect further stock correction, but the question remains what comes next? We believe this event will shake investor confidence on franchise value. While valuation looks low, book value sanctity is under question. We are yet to cut earnings estimates, given a pending external report, but earnings downgrade is imminent. We downgrade to Sell from Accumulate with a lower target price of Rs 830 from Rs 1,020.”
Analysts at Nuvama Institutional Equities have downgraded the scrip to ‘Reduce’ from ‘Hold’, feeling uncomfortable with a series of negative developments at the bank, and fearing a hit on the lender’s “credibility.”
“We downgrade the stock to 'Reduce' from 'Buy' and cut the target price to Rs 850 (from Rs 1,400). We cut our FY2025E earnings by 25 per cent to reflect the recent development," said Kotak Institutional Equities.
