IndusInd Bank Q4 Results Preview: Accounting Gaps Cloud Outlook Amid Asset Quality Woes

IndusInd Bank is set to report a challenging March quarter marked by multiple accounting discrepancies, which is expected to dominate the upcoming analyst call on Wednesday.

The accounting issues in the bank's derivatives portfolio is expected to have an impact of Rs 1,960 crore on its balance sheet for fiscal 2025, while the two new accounting discrepancies in interest income discovered in the internal audits last week worth Rs 674 crore and Rs 595 crore are also likely to reflect in the March quarter results.

The private sector bank is expected to report a net loss for the March quarter at Rs 410.85 crore, according to the consensus estimate of analysts polled by Bloomberg. The bottomline was Rs 2,349 crore in the year ago period and Rs 1,402 crore in the prior quarter.

In line with the impact on its profit and loss statement, it will also affect the bank's interest income and swap costs, while the general reserve remains unaffected, Deven Choksey Research said.

Last week, IndusInd Bank informed exchanges that an internal audit found Rs 674 crore was "incorrectly recorded as interest" over three quarters of fiscal 2025, which was fully reversed as on Jan. 10, 2025; and Rs 595-crore worth unsubstantiated balances in the "other assets" accounts of the bank.

"Sharp decline in growth, margins, higher LLP (limited liability partnerships), and recognition of derivate accounting loss could push the bank into loss, unless it utilises its contingent buffer with approval of the Board," Emkay Global Financial Services said in a preview note.

What analysts would also be keen on knowing would be about the pace of the ongoing management transitions after the top-level exits in recent period.

The lender's Chief Financial Officer Gobind Jain had resigned in January, just days before reporting the December quarter results. At the time, Jain had cited other opportunities outside the bank in his resignation letter.

After an investigation was launched into the accounting issues, IndusInd Bank CEO Sumant Kathpalia and deputy CEO Arun Khurana announced their immediate resignations in April.

• Net loss seen at Rs 410.85 crore vs Rs 2,349 crore net profit.

• NII seen falling 6% to Rs 5,030 crore.

• NIM seen at 3.96%, up 3 basis points QoQ but lower than 4.26% YoY

The bank's net interest income is set to fall by 6% on year to Rs 5,030 crore, as per the consensus estimate of analysts polled by Bloomberg. In the December quarter, it was Rs 5,228 crore. Net interest margin of the bank is seen at 3.96% as against 3.93% a quarter ago.

Brokerage Elara Securities expects vulnerabilities to reflect in asset quality with pressure points expected in the microfinance portfolio and business momentum to be impacted given the recent episode around derivative accounting and management transition, with higher decline in NIMs and NII.

"We expect management commentary on final impact of audit, growth outlook, deposit mobilisation and credit costs normalisation to dominate discussions," Elara Securities said.

Apart from the accounting division fiasco, microfinance portfolio remains a key vulnerability for the bank, with rising stress and slippages expected to increase credit costs significantly.

Kotak Institutional Equities expect the bank's provisions to increase sharply due to higher slippages from the MFI portfolio at 2.7% or Rs 2,500 crore.

Deposit growth is expected to moderate, with some outflows due to negative sentiment, although Kotak Institutional Equities expects deposit growth at around 7% year-on-year, but the print appears to be better than expected considering the recent news event at the bank.