No, Your IndusInd Bank Deposits Are Not Under Stress

Over the course of the week, depositors of IndusInd Bank have raised questions about the safety of their deposits. This comes as more and more details emerge of accounting discrepancies at the private sector bank, the CEO and Deputy CEO selling their stake last year and comments about the regulator not liking leadership at the bank. 

Sample this message sent out by an NDTV Profit viewer.

“I have a sizeable amount in fixed deposits in Indisind Bank which was giving a good interest. However the bank is in distress according to daily reports and being helped out by RBI. Is my fd at risk? They mature in 2026. Should they be pulled out which causes needless risks.”

To add to the mess, social media is awash with rumour-mongers who are spinning partial or complete lies, further spreading confusion. 

NDTV Profit will explain what is happening at IndusInd Bank and why there is no need for depositors to fear.

On March 10, IndusInd Bank came out with an exchange clarification, stating that it had detected some discrepancies in its derivatives portfolio. The impact of these discrepancies is the equivalent of 2.35% of the bank’s net worth. In cash terms, this works out to Rs 1,500-2,000 crore. 

There are questions being raised about how the bank could have missed this large an amount in its regular audits. 

Questions are also being raised about why MD & CEO Sumant Kathpalia and Deputy CEO Arun Khurana sold nearly 80% of their shareholding in the market months before this gap was revealed to the public. To be sure, these were shares allotted to the two under the ESOP programme a few years ago. The shares were sold at prices around Rs 1,524 per share, when the prices were trending closer to their 52 week high. Since then the share prices have trended significantly lower. 

Sources have told NDTV Profit that Reserve Bank of India has started a closer review of bank derivative books, to ensure that other banks in the system are not impacted by similar gaps. Markets regulator Securities & Exchanges Board of India is also likely to start a preliminary inquiry into the matter. 

These developments come merely days after RBI approved a one year tenure extension for Kathpalia, while the bank’s board sought a three year term. According to Kathpalia, the banking regulator is uncomfortable with his leadership skills. The bank’s board has to decide who the potential successor to Kathpalia might be. 

Yes, the accounting discrepancy found at IndusInd Bank is large. For an accounting discrepancy. This has no real bearing on the financial stability or solvency of the bank. 

As a lender, IndusInd Bank’s outstanding deposits as of December 31 were Rs 4.09 lakh crore. The outstanding loans extended by the bank were Rs 3.66 lakh crore. 

Its gross non-performing asset, or bad loan ratio, was at 2.25% of total loans. While this number has inched up slightly, it is far below levels where depositors need to worry. 

Capital adequacy ratio for the bank was at 16.46% as of December 31. The capital ratio shows the bank’s ability to weather financial stress and/or fund its future growth. This is also much higher than the regulatory minimum of 11.5%. 

To be sure, modern India has never seen a scheduled commercial bank be shut down. RBI, under the Banking Regulation Act is empowered to take swift action, if it feels that depositors might be under any kind of stress. 

In an event where RBI feels that a bank is not financial viable, it typically ensures a rescue plan is implemented and the interest of all depositors is protected. The banking regulator displayed that in 2019 when it rescued Lakshmi Vilas Bank and then again in 2020 when it came to Yes Bank. No depositor of these banks had to face any dilution of their deposits. 

Having said that, IndusInd Bank’s financials are nowhere close to levels, where the RBI needs to deploy any such protective measures.