IndusInd Bank slips 7% as RBI reappoints MD & CEO for shorter tenure

RBI's approval for reappointment of MD & CEO being for a lower tenure compared to board approval, which was for three years, could keep stock under pressure in near term

Shares of IndusInd Bank slipped 7.46 per cent to Rs 1,060 on the BSE on Monday after the Reserve Bank of India approved the reapp­oin­tment of Sumant Kathpalia as the managing director and chief executive officer (MD & CEO) for a period of two years as against the board's approval for 3 years.

"Fundamental strength and strategy to improve business mix remain on track. However, central bank's approval for reappointment of MD & CEO being for a lower tenure compared to board approval, which was for three years, could keep stock under pressure in the near-term", ICICI Securities said in a note.

The reappointment of Kathpalia is effective from March 24, 2023. His current term ends on March 23, 2023.

In the past three months, IndusInd Bank has underperformed the market by falling 12 per cent as compared to a 5 per cent decline in the S&P BSE Sensex.

IndusInd Bank’s stock price has been under pressure not only due to the macro uncertainty but also because of the clarity around the extension. Motilal Oswal Financial Services (MOFSL) thus believes the RBI approval will now shift the focus to the fundamental performance of the bank.

There was uncertainty around his extension and all sorts of conjectures were made with respect to the tenure that will get approved by the central bank.  “We note that there had been instances in the past where despite a shorter term approval, the MD & CEOs of other banks had been able to secure a three- year regular term during subsequent renewals,” MOFSL said in a company update.

IndusInd Bank has been demonstrating a healthy improvement in operating performance fueled by a pick-up in loan growth, strengthening liability franchise and improving asset quality. The brokerage estimates IndusInd Bank to deliver a 20 per cent loan CAGR over FY23-25. Asset quality risks are receding with a gradual reduction in slippages, which will drive a continued moderation in credit costs, MOFSL said.