IndusInd Bank faces Rs 2,100 Crore setback, shares plummet

IndusInd Bank's handling of a significant Rs 2,100 crore accounting discrepancy failed to prevent a dramatic drop in its share value, which plummeted over 27% on the stock market.

CEO and Managing Director Sumant Kathpalia assured stakeholders that the bank retains sufficient reserves and capital to manage the fallout. However, this reassurance did little to stabilize investor confidence.

The discrepancy, which emerged in the bank's derivatives portfolio, was initially identified between September and October of the previous year.

The bank has since provided a preliminary update to the Reserve Bank of India (RBI), with the full impact expected to be clarified once an external agency completes its independent review by early April.

On Monday, IndusInd Bank disclosed through a stock exchange filing that the identified discrepancies could adversely affect about 2.35% of its net worth as of December 2024, according to an internal review.

Analysts have evaluated the financial discrepancy at roughly Rs 2,100 crore. To ensure thorough evaluation, the bank has hired an external agency to independently validate its findings.

Kathpalia affirmed that the bank's overall profitability and capital adequacy remain robust and capable of absorbing this one-off issue, which was self-identified by the bank.

The stock market reacted sharply, with IndusInd Bank shares plunging 27.17% to close at Rs 655.95 on the BSE. The stock hit a 52-week low of Rs 649, marking a 28% decline from the previous day's closing price of Rs 900.

During a late-night analyst call on Monday, Kathpalia explained that the discrepancies had accumulated in the bank's books over the last 5-7 years, prior to April 1, 2024.

This went undetected through various internal, statutory, compliance, and RBI audits.

The issues surfaced during a review of the internal trade book, prompted by an RBI circular issued in September 2023. The circular required the discontinuation of internal trade in derivatives starting April 1, 2024.

"We began noticing discrepancies in October, which prompted us to engage an external agency for a comprehensive review. We anticipate their report by the end of March or early April," Kathpalia stated.

Kathpalia also mentioned that a "preliminary update" on the discrepancy was communicated to the RBI last week.

When questioned during the analyst call about the impact of this issue on his potential reappointment as Managing Director, सुमंत Kathpalia paused, underscoring the broader implications of the discrepancy for bank leadership decisions.