IndusInd Bank Q4 Results Likely To Reflect Rs 3,000 Crore Accounting Hit, Say Analysts
IndusInd Bank disclosed a fresh discrepancy in interest income on Thursday, adding to earlier flagged irregularities in its derivatives book.
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IndusInd Bank’s fourth quarter results are expected to reflect a cumulative accounting impact of up to Rs 3,000 crore, according to analysts. The private lender disclosed a fresh discrepancy in interest income on Thursday, adding to earlier flagged irregularities in its derivatives book.
Analysts expect that the fourth quarter earnings of IndusInd Bank will show the impact of fresh accounting discrepancies. Morgan Stanley and Macquarie Research refrained from changing their stock rating and target prices before the release of the private lender's January–March earnings, which is scheduled for Monday.
IndusInd Bank on Thursday reported a new discrepancy which showed that Rs 674 crore was "incorrectly recorded as interest" over three quarters of fiscal 2025. This followed the private lender's first disclosure on March 10 that they had noticed irregularities in their derivative portfolio, which would result in financial impact of 2.35% of net worth as of December 31, 2024.
"We will revisit our estimates and price target following 4QF25 earnings, which will give us more clarity on underlying margins as well as asset quality."Morgan Stanley
The full-year impact of the discrepancies will be Rs 900 crore on pre-tax basis as per Morgan Stanley's estimates. It will likely be accounted in fourth quarter earnings. After taking into account the derivatives portfolio discrepancy, the cumulative impact will be Rs 3,000 crore on pre-tax basis, and Rs 2,300 crore on post-tax basis. This amounts to 3.4% of third quarter FY25 book value.
Morgan Stanley estimates that inflated interest income amounting to 20 basis points of pre-tax on Return on Asset could lead to 15–20% downside to the brokerages' FY26 and FY27 earnings estimates.
IndusInd Bank also responded to a 'whistleblower' complaint. The internal audit department reviewed transactions recorded in 'other assets' and 'other liabilities', which showed unsubstantiated balance aggregating up to Rs 595 crore. The balance was set off against balances appearing against 'other liabilities', Macquarie said. Both discrepancies surfaced after a news article flagged fresh irregularities.
Macquarie believes that IndusInd Bank's valuation is subpar and at 0.7 times FY27's Price-to-Book ratio.
Investec downgraded IndusInd Bank and reduced the target price to Rs 780 from Rs 900. The present target price implied no change from Thursday's closing price. Investec also cut FY25 net profit estimates to 22%. Estimates for FY26 and FY27 have been reduced to 13% and 17%, respectively, due to Net Interest Margin compression and lower growth. IndusInd Bank will likely deliver 9%-10% ROE over the next two years, Investec said.
"This (discrepancy) is unlikely to have any P&L impact, in our view. Adjusting for the Rs 6.74 bn additional interest income implies its core NIM was 17bps lower than its reported NIM."Investec
In short-to-medium term, IndusInd Bank will focus on gaining clarity over management succession, according to Macquarie.
A two-member executive committee is running IndusInd Bank at this point in time after its managing director and chief executive officer resigned. As of now, there remains no clarity about the appointment of a new CEO, Investec said.
