Shares of IndusInd Bank surged by 4% to ₹767.65 on April 16, 2025, following the release of an external audit report that confirmed discrepancies in the bank's derivatives portfolio. The report, conducted by PricewaterhouseCoopers (PwC), estimated a negative impact of ₹1,979 crore as of June 30, 2024. This news comes as a relief to investors, as the quantified damage translates to a 2.27% post-tax reduction in the bank's net worth, slightly better than the earlier internal estimate of 2.35%.
The rise in share prices marks the third consecutive day of gains for IndusInd Bank, which has seen its stock price increase by 13% during this period. This upswing follows a tumultuous period between March 6 and March 12, 2025, when the bank’s shares plummeted by 38% due to the revelation of major accounting discrepancies.
On March 10, 2025, IndusInd Bank disclosed that it had identified discrepancies in the account balances of its derivatives portfolio. An internal review suggested an adverse impact of approximately 2.35% of the bank's net worth as of December 2024. However, the final report from PwC, received by the bank on April 15, 2025, quantified the loss at ₹1,979 crore, reflecting a post-tax impact of 2.27% on net worth.
In a statement, IndusInd Bank indicated, "The Bank will appropriately reflect the resultant impact in the financial statements for FY 2024-25 and continue to take suitable steps to augment internal controls relating to derivative accounting operations." This commitment to transparency and swift disclosure has likely contributed to the stock's rally.
Despite the recent gains, IndusInd Bank faces challenges ahead. The Reserve Bank of India (RBI) has ordered a forensic probe by Grant Thornton Bharat into the discrepancies. The RBI's assessment aligns closely with PwC's findings, estimating a hit of around ₹2,000 crore. Concerns regarding the timeline and manner of the disclosures have reportedly raised alarms with the regulator, potentially leading to senior-level exits within the bank.
Sources suggest that at least three top executives, including CEO Sumant Kathpalia and Deputy CEO Arun Khurana, may step down in the coming months. The board is already engaged in succession planning, prompted by the RBI’s decision to extend Kathpalia’s term by just one year. The RBI has requested the board to begin identifying potential successors and submit a shortlist of candidates at least four to six months ahead of Kathpalia’s term end in March 2026.
In a March 11 interview, Kathpalia revealed that the discrepancies had first come to light in October 2024. He noted, "We found this anomaly around October, and that is when we started our internal assessment and brought in an external agency. At the time, we didn’t know the full extent. We knew that two deals were being accounted incorrectly — but there were many more involved. Once we understood the impact, we called a board meeting and made the disclosure." He also expressed confidence that the bank would not incur a loss for the full year, stating, "The full year will not be a loss at all. And I think Q4 will also be a profit — even after factoring this in."
Market analysts have weighed in on the bank's situation. Brokerage Macquarie described the reduced impact as "incrementally positive in the near term as the impact of discrepancies will be limited to what was ascertained earlier by management." Meanwhile, Morgan Stanley maintained its "equal-weight" rating for the bank, keeping the target price at ₹775, while Macquarie set a more optimistic target of ₹1,210, suggesting a potential upside of 64.5% from the previous session's closing price.
Amidst these developments, the March 2025 quarter shareholding pattern revealed that Foreign Portfolio Investors (FPIs) increased their holdings in IndusInd Bank by nearly 5 percentage points to 29.5%. However, domestic mutual funds, insurance companies, and provident funds have reduced their stakes by up to nearly 3 percentage points. The promoter and promoter group stake in IndusInd Bank fell to 15.83% from 16.29%, while retail individual shareholders increased their holdings to 17.9% from 16.2%.
Looking at the broader picture, IndusInd Bank, which is India’s fifth-largest private lender by assets, has struggled with elevated bad loans in the microfinance segment, leading to a decline in profits over the past two quarters. The bank's shares have faced significant pressure, falling 15% since March 10, when the accounting discrepancies were first reported. Over the past six months, the stock has lost 43%, and it is down nearly 49% on a year-to-date basis.
Despite the recent volatility, the stock has shown signs of recovery, delivering a 10% return over the last five days and a 13% gain over the past month. The bank's market capitalization stands at ₹59,520 crore, with a 52-week high of ₹1,550 and a low of ₹606.
As the dust settles, investors and analysts alike will be closely monitoring IndusInd Bank's upcoming quarterly earnings reports for further insights into the bank's financial health and the full impact of the derivative discrepancies. The focus will also remain on the bank's internal controls and governance, as these factors will play a crucial role in restoring investor confidence moving forward.
