Shares of IndusInd Bank Ltd. plummeted 10% on March 11 after the private lender disclosed significant discrepancies in its forex derivatives portfolio, raising concerns about financial transparency and risk management. The issue stemmed from low-liquidity swap contracts linked to 3/5-year yen and 8/10-year dollar borrowings, which were not marked to market (MTM) as per standard accounting practices. The discrepancies have led to an estimated 2.35% erosion in the bank’s net worth, translating to a potential profit impact of ₹1,500 crore. The bank’s management, led by CEO Sumant Kathpalia, acknowledged the issue in an analyst call, stating that the general reserves cannot be used to offset the impact, and the losses would need to be accounted for in the profit and loss (P&L) statement. While the initial estimates suggest a ₹1,500 crore hit, the final financial impact could be higher as an external review is still underway, and its results are expected in Q4FY25.
Following this disclosure, leading brokerage firms slashed their ratings and target prices for IndusInd Bank, citing increased financial uncertainty. Motilal Oswal (MOSL) downgraded the stock from ‘Buy’ to ‘Neutral’, reducing its target price from ₹1,100 to ₹925. The brokerage noted that the derivative accounting lapse raises concerns about near-term uncertainties, potentially affecting investor confidence and valuations. Similarly, Emkay Global revised its rating from ‘Buy’ to ‘Add’, slashing the target price by ~22% to ₹875 from ₹1,125. Emkay highlighted that the ₹15.8 billion (post-tax) impact on net worth could negatively affect the bank’s return on assets (RoA) and financial stability. The brokerage also pointed out that historical discrepancies in forex derivatives transactions have now surfaced as a major governance issue, prompting a need for greater scrutiny. Despite these concerns, the bank’s current MD, Sumant Kathpalia, has assured stakeholders that he will stay for another year to help stabilize the situation.
With the external audit yet to conclude in Q4FY25, investors remain cautious, closely monitoring IndusInd Bank’s upcoming financial results and management’s remedial actions. The significant stock price decline reflects growing market anxiety over potential regulatory scrutiny and long-term financial stability. Market participants are now waiting for further clarity on the full extent of the impact and how the bank plans to rebuild investor confidence in the coming quarters.
