Moody's places IndusInd Bank's credit assessment on review for downgrade

Moody's said that the impact of the derivatives transactions, coupled with the ongoing stress in the retail unsecured loans, is likely to hurt the bank's profitability, capital and funding

Moody's Ratings said on Monday it has placed IndusInd Bank's baseline credit assessment (BCA) under review for downgrade due to concerns over "inadequate internal controls" after the lender found discrepancies in its derivative accounts. 

"The impact of the derivatives transactions, coupled with the ongoing stress in the retail unsecured loans, is likely to hurt the bank's profitability, capital and funding, potentially leading to a downgrade of the BCA," Moody's said. 

Baseline credit assessments are based on the company's own financial health, without considering any help it might get from related companies or the government. 

The Mumbai-based lender earlier this month reported it had discovered an accounting discrepancy in the way it booked currency derivatives stretching back at least six years, with an estimated impact of $175 million. 

"Beyond the accounting issue, IndusInd's potential leadership changes also remains a monitorable," Moody's added. 

The accounting issue has further compounded worries for the bank's stock which was already under pressure after the central bank last week approved a shorter-than-requested extension for CEO Sumant Kathpalia. 

Shares of IndusInd Bank are down roughly 28 per cent since the central bank's decision. 

Moody's maintained its 'Ba1' rating on IndusInd Bank with stable outlook, citing the bank's strong capital, core profitability and stable funding, but said an upgrade of ratings was unlikely in the near term given the review for a downgrade of the BCA.     

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