Moody's Affirms IndusInd Bank Rating; Downgrades Outlook, Standalone Credit Profile
The rating considers IndusInd Bank's strong capital, core profitability and adequate liquidity which will help mitigate near term risks to its funding and asset quality.
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Moody's Ratings on Friday affirmed beleaguered lender IndusInd Bank's rating but downgraded the outlook to negative reflecting the potential for further impact in the bank's solvency, funding, or liquidity.
The US-based agency also downgraded IndusInd Bank's standalone credit profile to ba2 from ba1 reflecting weakness in its internal controls as highlighted by the discrepancy in derivatives accounting, inadequate management oversight and concerns about the bank's medium-term strategy due to resignation of senior leadership without adequate succession planning.
IndusInd Bank had been hit by accounting lapses in its derivatives portfolio having financial implication of Rs 1,960 crore. On April 29, Chief Executive Officer Sumant Kathpalia and Deputy Chief Executive Officer Arun Khurana resigned from the bank, following which IndusInd board appointed a 'Committee of Executives' to oversee the operations of the bank, till a new MD & CEO assumes charge or a period of 3 months.
"...the accounting lapse highlights inadequate internal controls. The resignation of the top management has also raised concerns on other potential lapses which may get uncovered over the next few quarters," Moody's said.
IndusInd Bank reported consolidated assets of Rs 5.5 lakh crore ($64.2 billion) as of Dec. 31, 2024.
"Moody's Ratings has today affirmed IndusInd Bank Limited's Ba1 long-term foreign currency and local currency bank deposits and issuer ratings," it said in a statement.
The rating considers the bank's strong capital, core profitability and adequate liquidity which will help mitigate near term risks to its funding and asset quality.
"However, we have changed the rating outlook to negative from stable to reflect the potential for further impact in the bank's solvency, funding, or liquidity, as IndusInd continues efforts to stabilize its operations and strategy under a new management team," Moody's said.
IndusInd's asset quality is experiencing some stress with gross non-performing loans ratio deteriorating to 2.3% at the end of December 2024 from 1.9% at the end of March 2024, due to an increase in NPLs in the microfinance and credit card loan segment amid industry wide challenges in subprime retail loans.
The bank is also conducting an internal review of its microfinance business before finalising the accounts for the quarter ending March 2025, in response to concerns raised to management.
"While we expect IndusInd's NPLs to increase further, the bank's adequate provisioning will limit the impact on profitability and capital," Moody's said.
