IndusInd Bank Faces Target Price Cuts As Credibility, Earnings Troubles Emerge

IndusInd Bank Ltd.'s credibility and earnings will be impacted, say analysts, after the lender identified accounting discrepancies of 2.35% of the bank’s net worth as of December 2024 in its derivatives portfolio during an internal review. Several brokerages have reduced their target price for the bank's stock amid fresh turmoil.

The bank has appointed an external agency to review and validate its internal findings independently. The disclosure followed the Reserve Bank of India’s September 2023 guidelines on bond investment categorisation and valuation.

This will have an approximate impact of Rs 2,100 crore, the management said in an analyst call.

Such lapses reflects "weak internal controls" in the Mumbai-based private bank, said Jefferies.

The discrepancy has likely led to the overstatement of net interest income in the years prior to fiscal 2024. "This, along with shorter CEO term extension and challenges in MFI will limit rerating. We lower FY25 earnings estimate by 25%," the brokerage said.

Recent developments have raised the risk perception and impact disclosed borrowings cost too, Citi said in a note.

"Whether this process lapse is one rationale for RBI’s discomfort or there is more to it needs to be monitored," it said, referring to last week's decision by the banking regulator to allow only a one-year extension to Chief Executive Officer Sumant Kathpalia.

IndusInd Bank will face a "litmus test" from the succession viewpoint and the board is likely to evaluate both external as well as internal candidates, the brokerage said.