IndusInd Bank may face hit to core profit and biz growth: Brokerages

Brokerages lower FY25 and FY26 estimates after IndusInd Bank audit reveals ₹674 crore income misreporting and ₹595 crore in unsubstantiated balances

After the disclosure of additional accounting discrepancies in an internal audit at IndusInd Bank, brokerages have warned of potential impairment to the bank’s core profitability and business growth, revising profitability estimates for 2024-25 (FY25) and FY26.

 

A review of the bank’s microfinance business by the internal audit department (IAD), on Thursday, revealed an incorrect recording of ₹674 crore as interest income over three quarters of FY25. The amount was fully reversed as of January 10.

 

Earlier, the IAD had found that there were unsubstantiated balances aggregating to ₹595 crore in “other assets” accounts, which were then set off against corresponding balances under “other liabilities” accounts in January 2025.

 

The lender’s shares, however, closed marginally higher on Friday, at ₹782.30, on the BSE.

 

According to an Investec note, these discrepancies add to the bank’s ongoing issues related to over-reporting of income from derivatives. The lender has already seen senior leadership exits, including those of the chief financial officer in January and chief executive officer (CEO) and deputy CEO in April.

 

“We are cautious in this period of heightened uncertainty at the bank, which should also see structural impairment in core profitability and business growth”, the note said. 

 

Additionally, global brokerage CLSA said in a note that the audit report highlighted ₹674 crore was incorrectly recorded as interest income in nine months of FY25; this will be reversed in Q4FY25. Also, “other assets” and “other liabilities” on the balance sheet were inflated by ₹600 crore.

 

“Adjusting for ₹674 crore additional interest income implies its core net interest margin (NIM) was 17 basis points lower than its reported NIM,” the note said. CLSA has cut the bank’s net profit estimates by 22 per cent for FY25 and 13-17 per cent for FY26-27 in the view of NIM compression and lower growth. 

 

IndusInd Bank has been experiencing accounting discrepancies since March, when it disclosed that an internal review found mismatch in the derivatives portfolio. Following Grant Thornton’s report on the discrepancies in the derivatives portfolio, the bank said it would take a hit of around ₹2,000 crore on its profit and loss account.

 

The CEO and deputy CEO resigned from their posts taking moral responsibility for the incidents. Following their resignations, RBI had approved IndusInd Bank’s request to form an executive committee to discharge the duties and responsibilities of CEO for a maximum period of three months or till a new CEO took charge, whichever was earlier. The bank’s board has constituted the “committee of executives”, which comprises Soumitra Sen, head, consumer banking, and Anil Rao, chief administrative officer.

 

CLSA on IndusInd Bank: 

 

Cut FY25 PAT est. 22% & cut FY26-27 PAT est. 13%-17% due to NIM compression& lower growth

 

Investec on IndusInd Bank: 

 

Cautious in this period of heightened uncertainty at the bank, which should also see structural impairment in core profitability and business growth. 

IndusInd Bank to declare Q4 & FY25 earnings on May 21 

 

Private sector IndusInd Bank on Friday disclosed to the exchanges that it’s board of directors will meet on May 21 to consider and approve the audited consolidated and standalone financial results of the bank, for the quarter and financial year ended March 31, 2025 and will consider recommendation of dividend, if any, for FY25.