Following a significant decrease in IndusInd Bank shares on Tuesday, CEO Sumant Kathpalia said that the bank is expected to offset the losses within the current quarter. "The full year won't be a loss at all. And I think Q4 will also be in profit," he told CNBC-TV18 on Tuesday.
On Tuesday, March 11, shares of IndusInd Bank Ltd., experienced a significant drop of 27%. The stock hit a 52-week low of Rs 655.00 due to the bank's announcement regarding accounting problems linked to its derivatives.
IndusInd Bank has projected a Rs 1,530 crore negative impact as a result of discrepancies in its derivative portfolio. Following an internal assessment of processes pertaining to certain segments of its derivative portfolio, the bank anticipates a 2.35% adverse effect on its net worth. This review was initiated in compliance with the RBI's directives on lenders' investment portfolios, released in September 2023, which specifically addressed the 'Other Asset and Other Liability' accounts within the portfolio. The bank has identified discrepancies in the balances of these accounts.
Kathpalia explained that the bank discovered the anomaly on October 24 and immediately initiated an internal assessment, as well as appointed an external agency. He said at that time, the bank was uncertain about the extent of the anomaly, which had occurred over a period of 7 to 8 years.
"We found this anomaly around October 24, and that is when we started our internal assessment and hired an external agency. We did not know the real impact. As soon as we understood the impact, we held a board meeting and made the disclosure," he said.
"The bank has not hidden any disclosures at this point. We have been very transparent. This is a one-off item, not a recurring item. We should get over it in this quarter. You should see the growth the bank is seeing and the profitability which the bank is used to," he added.
"The bank is very very solid… I continue to believe that the bank is fundamentally very strong. Yes, we had our hiccups. But I think I is a matter of time that the bank will come out. I don’t think there are any hidden skeletons in the cupboard. We are not hiding any losses from the investors. There is an absolute transparency in the system," Kathpalia added.
Hinduja assures liquidity
Earlier in the day, Ashok Hinduja, Chairman of IndusInd International Holdings Ltd (IIHL), confirmed that there have been no margin calls activated on pledged holdings. He reassured stakeholders that the promoter group possesses strong financial support to increase its ownership in the bank upon obtaining regulatory clearance.
IIHL operates as a holding company with a wide shareholder base of over 600 individuals, and does not engage in direct business activities. Its revenue is generated through dividends and the company's market value. Hinduja informed CNBC-TV18 that the group is in a stable financial position, with ample liquidity to substitute pledged shares if required.
“IIHL is a holding company with over 600 shareholders and no direct business operations. It depends on dividends and the company’s valuation,” Hinduja said.
Addressing concerns regarding transparency, Hinduja acknowledged investor unease regarding the timing of the disclosure but urged shareholders not to panic. He reiterated that there is no necessity for further pledging of shares.
“IIHL is a holding company with over 600 shareholders and no direct business operations. It depends on dividends and the company’s valuation,” Hinduja said.
Hinduja also urged shareholders of IndusInd Bank not to panic, assuring them that he empathizes with their concerns regarding why the issue was not disclosed sooner.
The Reserve Bank of India initially granted incumbent MD & CEO Sumant Kathpalia a one-year extension, despite the board approving a three-year extension. On Monday evening, the bank revealed a post-tax hit of approximately Rs 1,500 crore following an internal accounting review. The recent sell-off in IndusInd Bank has led to a market cap decline of nearly Rs 20,000 crore.