IndusInd Bank's stock price crashed by 25% today as the bank closed 3.87% lower on Monday at ₨ 900.50. The stock price hit its lowest level since November 2020 an intraday low of ₨720 per share. The decline in the price of the stock of IndusInd was due to the bank's announcement of discrepancies in its derivative accounting. The bank had underestimated hedging costs from past foreign exchange transactions it is revealed in an internal review of the bank which led to a reduction in reduction in net worth of 2.35% as of December 2024. It raised concern about bank compliance mechanisms and internal processes which led analysts to downgrade stock and hit 52 week low. The bank expects a drop in its net worth from ₨1600cr -₨ 2000cr because of discrepancies in derivative transactions in five to seven years.

IndusInd Bank during an internal review found certain discrepancies in the accounting of losses on forex derivatives/swap transactions before April 2024. To hedge forex debt/deposit which is not related to the client and was not recognized through net interest income (NII) but the bank recognized this gain in the nits P&L account. RBI (Reserve Bank of India) stopped practices for derivatives/swap transactions for banks effective from April 1, 2024.

The total loss which is estimated by the bank's internal committee is supposed to be worth ₨2100 cr (in pre-tax) and approximately ₨1580 cr (in post-tax). On this bank said it shall take a hit through P&L by increasing provisions on the MFI portfolio which could push the bank into losses for the January to March quarter (Q4). To analyse the actual impact bank has appointed an external auditor and it will disclose all information relating to these trades. The bank is going on from continuous adverse events- first is past accounting discrepancies and second is reducing the term of MD Sumant Kathpalia from three years to one year. As a result we believe stock prices will suffer more in near term and also increase pressure on MFI (Microfinance Institutions) whereas most of the analysts reduced their rating from Buy to Add. The financial impact of this discrepancy could be limited for the bank but it will raise serious issues about the credibility.

If we keep aside the derivative portfolio discrepancy, bank management is assume increase stress on MFI (Micro Finance Intuitions) and credit costs in the upcoming quarter. MFI are the organizations

That provides financial services to individuals or groups who do not have access to traditional banking services. As these MFI facing trouble it will leads to higher credit costs and bank will face more stress in micro finance segment for that bank requires more provisions for bad loans.

Quarterly Result of IndusInd Bank

The net profit of IndusInd Bank increased to ₨140233 cr in (Q4) from ₨133129 cr in (Q3) which arose from ₨7104 cr on a quarterly basis but the net profit on a YoY basis decreased from ₨89,916 cr from ₨230149cr (Q3 2023) to ₨ 140233 cr (Q3 2024). The expenditure of the bank grew at the almost same rate as compared to the previous quarter but the net profit after tax from ordinary activities is increased in the December quarter from ₨133126 (Q3) cr to ₨140235 (Q4) because of the increase in the total income of the bank. Recent quarter results have shown growth in net profit but there is more probability of low profit in the next quarter because of discrepancy in accounting for balancing which requires more provisions for bad loans. The market analysts say that the bank will become on its path from the first quarter of the new financial year but we believe it will take more time and serious efforts to be back on track however management and internal auditors should follow right ethical and professional standards. For retail traders story doesn’t look “ buy on dip” case however cautious buying approach could be more justified at this point of time.