Synopsis
IndusInd Bank's stock fell by 20% due to an internal review predicting a 2.35% decrease in net worth by December 2024, resulting in a loss of Rs 14,000 crore in market capitalization. The bank plans to address this loss in upcoming earnings reports.Key Takeaways
- IndusInd Bank shares hit a 20% lower circuit.
- Projected net worth decline of 2.35%.
- Market capitalization reduced by Rs 14,000 crore.
- 52-week low at Rs 720.35.
- External agency appointed for review of derivatives portfolio.
Mumbai, March 11 (NationPress) IndusInd Bank's shares experienced a dramatic 20% lower circuit on Tuesday, following an internal review that indicated a negative effect of roughly 2.35% on its net worth by December 2024.
This significant decline wiped out around Rs 14,000 crore from the bank's market capitalization, marking a 52-week low of Rs 720.35 as it fell below the lower limit on the NSE.
The bank's net worth is projected to decrease by nearly Rs 2,100 crore due to discrepancies found in its derivatives portfolio during the internal review.
The Hinduja-promoted bank intends to absorb this loss in its Q4 earnings or the first quarter of the next fiscal year (FY26).
These findings have triggered a series of target price reductions from various brokerages, adding to the turmoil just days after the Reserve Bank of India granted only a one-year extension to CEO Sumant Kathpalia.
IndusInd Bank has engaged an external agency to independently assess and validate its internal findings on the derivatives portfolio, adhering to the Reserve Bank of India's guidelines issued in September 2023 regarding bond investment classification and valuation.
Citi noted that IndusInd Bank is undergoing a 'litmus test' regarding succession, with the board likely considering both internal and external candidates. Recent events have heightened risk perception and affected disclosed borrowing costs.
“We have downgraded IndusInd Bank to ‘HOLD’ from ‘BUY’, reducing the multiple to 1.0x from 1.4x due to uncertainties related to earnings quality and future leadership. The issues for IndusInd Bank persist since inconsistencies were discovered in derivative accounting,” stated Gaurav Jani from PL Capital- Prabhudas Lilladher.
This discrepancy spanned a 5-7 year period up to March 31, 2024; however, due to an RBI directive, there are no irregularities from April 1, 2024.
“In our opinion, this situation influenced the RBI’s decision to extend the MD and CEO's term for only one year. The valuation stands at 0.9x on FY27 ABV, and we have reduced the target price to Rs 1,000 from Rs 1,400,” added Jani.
