The Institute of Chartered Accountants of India (ICAI) will likely review books of IndusInd Bank following accounting discrepancies that were reported by the bank in its derivatives portfolio earlier this week. ICAI president Charanjot Singh Nanda told the Economic Times: "As a proactive measure, the Financial Reporting Review Board (FRRB) of the ICAI can review the relevant financial statements of IndusInd Bank."
Nanda stated that in the event the FRRB determines that the bank's financial statements do not meet the required standards of being "true and fair," they have the authority to escalate the matter to ICAI's disciplinary committee for potential action against the involved auditors.
On Monday, IndusInd Bank reported that discrepancies in its derivative portfolio may result in a decrease of approximately 2.35% in its net worth as of December 2024. The financial impact is estimated at around Rs 1,600 crore after taxes and approximately Rs 2,100 crore before taxes.
These discrepancies were discovered during an internal review of the bank's processes concerning other assets and liability accounts within its derivative portfolio. These transactions spanned over the course of seven to eight years up to the end of FY24.
Business Today could not verify the report with ICAI.
IndusInd Bank attempted to address worries over the accounting discrepancy on Tuesday, reassuring investors that it possesses adequate reserves and capital to address the issue. Despite this, the stock has plummeted by approximately 30% since the announcement, causing concern among investors.
IndusInd Bank's stock was placed under short-term Additional Surveillance Measure (ASM) - Stage 1 by the NSE due to a nearly 30% decline in its market value. The decision was made on March 13.
As of Thursday, IndusInd Bank shares closed at Rs 672.65 on the NSE, reflecting a decrease of Rs 12.05 or 1.76%.
Stock's ratings
After the revelation, several brokerages lowered their rating on the stock and reduced target prices due to an accounting error in the bank's forex derivatives portfolio. This resulted in a potential post-tax impact of Rs 15.8 billion, which is 2.35% of the bank's net worth, sparking concerns about governance and earnings predictability.
ICICI Securities highlighted the weak internal controls, stating that the impact is expected to affect the profit and loss statement, potentially leading to a loss in the fourth quarter of the fiscal year 2025.
Nuvama also lowered its rating on IndusInd Bank from 'Hold' to 'Reduce' and decreased its target price to Rs 750 due to credibility issues stemming from various negative events, such as the CFO's resignation, the CEO's shortened tenure extension, and the forex derivative markdown. The brokerage foresees ongoing earnings challenges.
Conversely, CLSA, a global brokerage firm, has taken a different view, maintaining an 'Outperform' rating and setting a target price of Rs 900, which is 31% higher than the previous day's closing price.