IndusInd Bank’s accounting discrepancies: How worried should depositors be?

Lender’s stocks plunge over 26 per cent eroding Rs 14,000 crore in market value on March 11, net worth expected to decline by nearly Rs 2,100 crore

Mumbai: IndusInd Bank shares were locked in a 20 per cent lower circuit on Tuesday, March 11, as the lender’s internal review projected an adverse impact of approximately 2.35 per cent on its net worth (as of December 2024).

The steep fall erased around Rs 14,000 crore in the bank’s market value.  The stock hit a 52-week low of Rs 657.70 down, 26.96%  on the NSE

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On the BSE, the stocks were down 26.94 per cent and were trading at Rs 658.00 at 3.17 pm.

Falling for the fifth straight day, the stock emerged as the major laggard on the 30-share BSE Sensex.

Accounting discrepancies

In a regulatory filing on Monday, IndusInd Bank said that during an internal review of processes relating to the derivatives portfolio, it noted some discrepancies in the account balances.

Mumbai-based IndusInd Bank’s detailed internal review has estimated an adverse impact of approximately 2.35 per cent of bank’s net worth as of December 2024, the company said in a statement.

The bank’s net worth is expected to decline by nearly Rs 2,100 crore after accounting discrepancies. The Hinduja-promoted lender plans to absorb this loss in its Q4 earnings or the first quarter of the next fiscal year (FY26).

The review was undertaken following RBI’s directions on investment portfolio of lenders, issued in September 2023, relating to ‘Other Asset and Other Liability’ accounts of the portfolio.

Following this disclosure, IndusInd Bank held an analyst call and said that an external auditor is reviewing the matter, with a report expected by the end of March 2025.

However, IndusInd Bank clarified that the profitability and capital adequacy remains healthy to absorb this one-time impact.

CEO gets only one-year extension
The internal review findings have sparked a string of target price cuts from several brokerages for the bank’s stock amid fresh turmoil, days after the Reserve Bank of India allowed only a one-year extension to Chief Executive Officer Sumant Kathpalia.

IndusInd Bank will face a “litmus test” from the succession viewpoint and the board is likely to evaluate both external as well as internal candidates, Citi said.

Recent developments have raised the risk perception and impact disclosed borrowings cost too, it added.

“We downgrade IIB to ‘Hold’ from ‘Buy’ as we cut multiple to 1.0x from 1.4x driven by uncertainties relating to earnings quality and future leadership. Woes continue for IIB since an irregularity was
unearthed in derivative accounting, said Gaurav Jani from PL Capital- Prabhudas Lilladher.

This discrepancy spanned across a 5-7 year period till March 31, 2024, however, due to an RBI directive, there are no irregularities with effect from April 1, 2024.