IndusInd Bank Q4 results: Losses likely for headless lender on accounting discrepancies

IndusInd Bank is staring at huge losses in the March quarter, as the private lender would be providing for Rs 1,960 crore accounting discrepancy on its derivatives portfolio, and also after the Rs 674-crore discrepancy on its MFI portfolio came to light. 

The headless bank is being run by a committee of executives, comprising of Head of Consumer Banking -- Soumitra Sen, and Chief Administrative Officer -- Anil Rao. This is after the abrupt resignations of CEO Sumant Kathpalia and deputy CEO Arun Khurana.

ICICI Securities noted that the recent developments in terms of derivative losses, departure of MD & CEO and CFO in quick succession and interest income irregularities, indicate lapses in internal control and governance aspects. 

"Apart from MFI exposure (9 per cent of loans), IIB has a reasonably high exposure to arguably riskier segments such as gems and jewellery (2.5 per cent of loans), and real estate (3.4 per cent). Any headwinds on growth or asset quality could significantly impact overall profitability," ICICI Securities said.

It noted that the bank board lacks a Whole-time Director too and, therefore, it does not rule out supervisory actions. The brokerage said that the new management may also take the opportunity to fix a subpar liability franchise, which could even come at the expense of growth or net interest income (NIM).

Motilal Oswal Financial Services (MOFSL) said IndusInd Bank’s net interest income (NII) is expected to decline sharply by 33.7 per cent year-on-year, as the bank factors in the impact of accounting discrepancies from a prior period. The brokerage projects a loss of Rs 143 crore for Q4.

MOFSL anticipates modest business growth for IndusInd Bank, with continued deterioration in asset quality. Margins are expected to come under pressure. The domestic brokerage, which maintains a neutral rating on the stock, also noted that elevated credit costs and the recognition of the accounting discrepancy are likely to result in a Q4 loss.

IIFL Securities, in its Q4 banking preview note, forecast IndusInd Bank to report a loss of Rs 280 crore for the March quarter, compared with a profit of Rs 2,349 crore in the same quarter last year. The brokerage also expects the bank may potentially witness a de-growth in deposits, following the recently reported accounting discrepancies in derivatives. These numbers did not account for Rs 674-crore discrepancy on MFI portfolio.