IndusInd Bank shares slip 6% on lower tenure extension for CEO

Shares of IndusInd Bank Ltd slipped nearly 6% today after Reserve Bank of India (RBI) extended the bank's CEO Sumant Kathpalia's term by another two years. It was widely expected that his term would be extended by three years but getting a year less in the second tenure at the helm disappointed Dalal Street.

The board of the private sector lender had approved a three-year extension for Kathpalia in September 2022 and sent the proposal for final nod to RBI. Kathpalia's current term as the CEO ends on March 24 this year.

Shares of IndusInd Bank fell up to 5.72% to Rs 1080 against the previous close of Rs 1145.50 on BSE. The stock was the top loser on Sensex and Nifty today. It opened with a loss of 2.41% at Rs 1117.95 today. On Nifty, it slipped 5.66% to Rs 1,080 against the previous close of Rs 1144.80 in early trade.

The stock of the lender has lost 11.14% this year and risen 20.4% in the last one year. Total 1.48 lakh shares of the firm changed hands amounting to a turnover of Rs 16.19 crore on BSE. Market cap of the bank fell to Rs 84,186 crore.

In terms of technicals, the relative strength index (RSI) of IndusInd Bank stands at 53.4, signaling it's trading neither in the overbought zone nor in the oversold zone. The banking stock has a one-year beta of 1.4, indicating very high volatility during the period. IndusInd Bank shares are trading higher than the 5 day, 20 day, 50 day, 100 day and 200 day moving averages.

The stock hit a 52 week high of Rs 1275.25 on September 20, 2022 and a 52 week low of Rs 763.75 on June 23, 2022.

Brokerage JPMorgan has downgraded the banking stock to a 'neutral' stance and reduced its target to Rs 1,060 per share. “In the current environment of tightening liquidity, the reappointment for only two years could place the bank at a disadvantage,” the broking firm said.

On the other hand, Morgan Stanley has assigned IndusInd Bank an 'overweight' rating and fixed a target of Rs 1,525 per share. Morgan Stanley analysts found it tough to ascertain the reason behind the lower tenure extension, as there have been instances of both lower as well as higher extension.

However, Citi has maintained its 'buy' stance on the private lender with a target of Rs 1,420 per share. “We will closely monitor the bank's progress on its strategic initiatives towards delivering over 5 percent pre-provision operating profit and towards delivering over 2 percent RoA and over 17 percent RoE over FY24/25,” it said.

Jefferies said the lower extension may mean slight pullback on growth and defer re-rating. It has trimmed loan growth estimate by 100 basis points for FY24-25.

“The lower tenure extension may be a reflection on the need to improve on controls (MFI incidence), liabilities (retail mix), and underwriting (retail and less risky). We see this as reasonable time to demonstrate progress as the bank had already made moves on these counts,” it noted in a report.

Since valuation is attractive at 1.4x FY24 price-to-book ratio, Jefferies has a 'buy' stance with target price lowered to Rs 1,550 from Rs 1,600.

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