IndusInd Bank faces ₹2,000 crore net worth hit as derivative gaps trigger fresh market fears

IndusInd Bank is bracing for a hit of up to ₹2,000 crore to its net worth, as it moves to plug accounting gaps from years-old derivative transactions.

The Hinduja-backed lender told analysts late Monday that it will absorb the loss either in the current quarter or the next, as it awaits a final audit review — a disclosure that comes amid rising questions over leadership stability and market value erosion.

IndusInd Bank expects its net worth to drop between ₹1,600 crore and ₹2,000 crore, about 2.35% of total net worth, following discrepancies linked to derivative transactions over five to seven years. The bank said it will adjust the impact in its fourth-quarter earnings or the first quarter of the next fiscal year.

“We began reviewing our internal trade book and noticed some discrepancies in our business, which were identified between September and October. We then hired an external agency to conduct a review,” CEO Sumant Kathpalia told analysts in a late-evening call. "We are confident that by the end of March or early April, we will have a clearer understanding of the situation. Although the initial findings seem in line with what we've stated, we want to ensure complete validation."

Kathpalia confirmed that a preliminary update was already shared with the Reserve Bank of India (RBI), and a final report was submitted as well. The external auditor’s report is expected by March-end.

Shares of IndusInd Bank closed 3.87% lower on Monday at ₹900.50, taking its market value loss to 37% over six months, including a 16% drop in the past month alone. The stock now trades near levels last seen in late 2022.

Addressing his one-year tenure extension, Kathpalia said, “I don't know what is the rationale for them (RBI) to give me one year, but I think they're uncomfortable with the way my leadership skills of running the bank is, and we have to respect that.”

“I remain committed for one year to the bank. The board will evaluate external and internal candidates for CEO position,” he added.

Market watchers continue to remain cautious. According to Bernstein, the stock is unlikely to see any rerating until a CEO with a full three-year term is in place. Macquarie Capital indicated that Kathpalia could step down early or the bank may consider appointing a public sector banker as his successor, viewing the one-year extension as a sub-optimal outcome.