IndusInd Bank shares may fall further as RBI extends CEO term for just one year

Shares of IndusInd Bank Ltd may react negatively to the RBI's reappointment of incumbent bank CEO Sumant Kathpalia for one year only. This is against the board’s application for three years. This is negative, said Nuvama Institutional Equities, as it believes IndusInd Bank will likely use the one year to transition to a new CEO. Recently, just before the Q3FY25 earnings, IndusInd Bank's CFO had resigned.

Given the RBI’s preference for an external CEO in case of recent appointments, the odds of an external CEO at IndusInd Bank after Kathpalia are high, Nuvama said.

Should this happen, near-term earnings visibility—already impacted by a weak MFI cycle—will become lower, the brokerage said.

"We expect the stock to be under pressure, despite the sharp correction, given low visibility, expectations of a soft Q4FY25E and uncertainty on top management. The CFO had also resigned recently," Nuvama said.

MOFSL has cut its FY26 and FY27 earnings estimates by 9 per cent and 10 per cent and estimated IndusInd Bank to deliver return on asset (RoA) of 1.3 per cent in FY26 and 1.4 per cent in FY27.

"We believe that at the current valuations IIB is already pricing in most of these uncertainties, and notwithstanding near-term negativity, we find the current valuations inexpensive, particularly as operating performance starts to recover in FY26. Maintain Buy with a revised target of Rs 1,100," MOFSL said.

IndusInd Bank shares are down 12 per cent in the past one month and 35 per cent in the past six months. IndusInd Bank has reported a muted performance over the past few quarters, led by a combination of factors, including a slowdown in loan growth, high slippages and provisions, and subdued margin performance, all of which have resulted in the stock price declining by 39.4 per cent in the ongoing financial year. Additionally, the speculation regarding the MD’s term extension has contributed to further de-rating in the stock price. MOFSL said.

"The stock has corrected sharply on concerns pertaining to MFI and the CEO’s reappointment. But we believe that the stock could continue to underperform as visibility gets lower. Q4FY25E earnings are likely to be soft as the MFI recovery is some time away and the company could make contingency provisions as well. Separately, the last top-up of pledge by promoters was in December 2024, when the share price was Rs 930," Nuvama noted.

IndusInd Bank already has a Deputy CEO, who can also be a contender should a new CEO have to be appointed in the next 9–12 months. But, given the RBI’s preference for an outsider in case of other recent appointments, the probability of an external candidate for a CEO of IIB to succeed Kathpali is high.

A media article suggested that Nippon Life Insurance -- the company, not the AMC, could buy a 9.9 per cent stake in IndusInd Bank. Nuvama said it sees this as a very complicated deal.

"Two years ago IIB promoters, the Hindujas, had applied to the RBI for increasing a stake in IndusInd Bank. From the company’s earnings calls too, we gather that the approval has not come through. The same promoters will soon become owners of Reliance Capital, which is the holding company of Nippon Life Insurance. Most approvals for the deal are in place," Nuvama noted.

It noted that stakes by insurance companies in bancassurance partners are not uncommon as it happened at IDFC recently, but the complication here is the common promoter, particularly when an RBI approval for a previous request is still pending. Hence, this deal looks difficult, Nuvama said.