Foreign Investors Bet Big on IndusInd Bank Before Full Crisis Unfolded

Foreign portfolio investors significantly increased their holdings in IndusInd Bank during the quarter ended March 2025, with their stake rising to 29.53% from 24.74% in the December 2024 quarter—marking the largest quarterly increase in nearly a decade.

This substantial investment came at a time full extent of challenges was yet to be revealed.

On March 10, 2025, IndusInd Bank revealed discrepancies in its derivatives portfolio with an estimated impact of Rs 1,900-2,000 crore, prompting the appointment of PwC for an external review.

The bank's March 20 announcement of a Grant Thornton investigation likely came too late to significantly influence quarterly shareholding patterns.

What these investors couldn't have known was the cascade of revelations that would follow in April and May 2025:

• April 22: Fresh microfinance accounting irregularities emerged, prompting an EY-supported internal audit

• April 27: Grant Thornton confirmed the Rs 1,960 crore derivatives impact and identified responsible individuals

• April 28-29: Both Deputy CEO Arun Khurana and CEO Sumant Kathpalia resigned in quick succession

• May 15: The bank disclosed two additional accounting lapses—Rs 674 crore in incorrectly recognised microfinance income and Rs 595 crore of unsubstantiated balances, both reportedly corrected in January but only disclosed months later

• May 28: SEBI's bombshell order revealed that management had known about the derivatives issues since December 2023, nearly 15 months before public disclosure

The total financial impact has now ballooned to over Rs 3,000 crore across multiple accounting irregularities, resulting in a record quarterly loss of Rs 2,329 crore.

More concerning than the financial hit are the governance failures—the delayed disclosures, insider trading allegations, and the revelation that senior management was aware of these issues for over a year before informing shareholders.

While it isn't possible to know the exact timing of investments made by foreign investors, it is a crucial element.

The 4.79 percentage point increase in FPI holdings during January-March 2025 now appears to have been made with incomplete information — primarily the derivatives disclosure and RBI's reassurance.

Whether foreign investors will maintain their bullish stance or reassess their positions will only become clear when shareholding patterns for the June 2025 quarter are disclosed.