'Vulnerabilities to reflect': IndusInd Bank rebounds 18% from 52-week low despite concerns over Q4 results

Shares of IndusInd Bank Ltd have climbed 18 per cent from their 52-week low level, even as stock analysts are fearing a soft Q4 for the private bank across parameters. Mid-tier banks such as IndusInd Bank were already facing challenges on the deposits front accentuated by a worsening of asset quality problem in the microfinance business. The reported accounting discrepancy on derivatives portfolio and the uncertainty over the next CEO (existing CEO given just one-year extension) added to IndusInd Bank woes.

In a note on IndusInd Bank, Elara Securities said it sees Q4 as a tough quarter for IndusInd Bank, marked by pressure across various line items. It sees vulnerabilities to reflect in asset quality with pressure points expected in the MFI portfolio.

"We expect business momentum to be impacted given the recent episode around derivative accounting and the management transition, which with higher NIMs decline will impact NII growth," Elara Securities said.

The domestic brokerage expects the IndusInd Bank management commentary on final impact of audit, growth outlook, deposit mobilisation and credit costs normalisation to dominate discussions. This brokerage sees Rs 759.40 crore loss for the private lender in Q4. It sees credit cost of IndusInd Bank rising 319 basis points to 4.7 per cent.

On Thursday, IndusInd Bank shares were trading 1.74 per cent to hit a high of Rs 708. It is up 18 per cent from March 12 low of Rs 605.40.

The private lender has estimated the accounting discrepancy impact at 2.35 per cent, expected to be absorbed through the P&L, with possible restatement of NII under evaluation.

IIFL Securities, in its Q4 banking preview note, projects IndusInd Bank to report a loss of Rs 280 crore for the March quarter, a stark contrast to the Rs 2,349 crore profit recorded in the same period last year. The brokerage also anticipated a potential decline in the bank’s deposit base, influenced by recently disclosed accounting discrepancies related to derivatives.

The IndusInd Bank issue surfaced during a review conducted between September and October 2024, prompted by an RBI directive issued in September 2023, mandating the cessation of internal trades by April 2024. These internal trades have since been fully discontinued and unwound, with the bank now exclusively relying on external counterparties for hedging activities.

According to MOFSL, IndusInd Bank is expected to witness a sharp 33.7% year-on-year decline in net interest income (NII), as the bank factors in the impact of accounting discrepancies from prior periods. The brokerage projects a loss of ₹143 crore for Q4.

MOFSL anticipates modest business growth for IndusInd Bank, with asset quality continuing to deteriorate. Pressure on margins is also expected, alongside elevated credit costs. The domestic brokerage, which maintains a neutral rating on the bank, noted that the recognition of the accounting discrepancy will contribute to the projected loss in Q4.