The emergence of accounting discrepancy could be behind the RBI's recent decision to extend IndusInd Bank CEO's tenure to just one year instead of three, as sought. A negative delayed derivatives’ disclosure has the potential to unnerve stock investors more than a back-dated non performing loan (NPL) disclosure, analysts noted, as the stock tumbled further to hit sub-Rs 700 level in trade today.
The IndusInd Bank stock hit a low of Rs 666.45 on BSE, down 26 per cent. This is the level IndusInd Bank last traded at in November 2020. The bank said it wanted to give out a best-case estimate of the impact and, therefore, the discrepancy was not disclosed during the Q3FY25 earnings call. It suggested that the RBI is aware of the issue, Nuvama noted.
To recall, IndusInd Bank's CFO Gobind Jain had resigned just before the Q3FY25 earnings. RBI later reappointed CEO & MD Sumant Kathpalia for one year only.
The fresh episode had a bearing on RBI’s decision to extend MD & CEO’s tenure only for one year, PL Capital said.
"Prima-facie the P&L would be hit by Rs 2,100 crore (pre-tax), mainly effected in interest expense while the remaining would be adjusted against trading income although an exact split has not been given. As per the bank, this irregularity would not impact the overall growth and business prospects," PL Capital said.
Kotak Institutional Equities said the financial implications are negligible, but it does raise the broader issue of credibility. The rebuilding the lost credibility is likely to take more than a few quarters, it said.
MOFSL has revised its target price to Rs 925, while ICICI Securities has set a target of Rs 850. Kotak Institutional Equities has lowered its target price for the stock to Rs 850 from Rs 1,400 previously and downgraded its rating from 'Buy' to 'Reduce'. PL Capital's target stands at Rs 1,000. Nuvama forecasts the stock at Rs 750, and Nirmal Bang has placed it at Rs 900.
In a note, Elara Securities on Monday had said the RBI not giving desired tenor extension and the recent CFO resignation was raising eyebrows. "Even as we assign a low probability, the possibility of possible portfolio actions (higher slippages) cannot be ruled out. We have yet to change our earnings estimates, but the earnings risk remains," it warned.
On Tuesday, the same brokerage said that the past year has been challenging for IndusInd Bank and the outcomes have been less than desired and marred by event risks. This was reflected in price movement in the past six months. The brokerage said it is yet to prune its earnings estimates, but the event does create challenges around potential downside revision.
"Given the uncertainty, we downgrade IIB to Sell from Accumulate with a lower target of Rs 830 from Rs 1,020 based on 0.8x (from 1.0x) FY27E P/BV," it said.
MOFSL said the IndusInd Bank stock has been on a downward trajectory, facing multiple setbacks, including weakened operating performance and the MD receiving only a one-year term vs a three-year regular term proposed by the board.
"The recent accounting discrepancies related to derivative transactions have further dampened sentiments and are likely to drive losses in 4QFY25 as the bank absorbs the impact through its P&L. We believe the board will expedite the process of evaluating both internal and external candidates for a suitable successor, which should help alleviate concerns and improve confidence in the bank’s operations," it said.