India Ratings removes IndusInd Bank from Rating Watch negative status

Concerns over stability of bank's franchise to persist says agency

India Ratings has removed troubled private sector bank IndusInd Bank from “Rating Watch with Negative Implications” status and affirmed “AA+” rating to the lender's debt instrument.

 

However, the rating agency maintained a negative outlook on these instruments. They reflect concerns arising from the bank reporting multiple accounting discrepancies totalling ₹4,920 crore in FY25 and weak internal controls.

 

On March 20, India Ratings had placed debt instruments on “Rating Watch with Negative Implications” after the bank made disclosures regarding discrepancies in its derivatives account balances portfolio and its adverse impact on its net worth.

 

While announcing results for Q4FY25, the bank management had said it has proactively taken incremental provisions for the irregularities. It conservatively created liquidity worth ₹62,000 crore via a run-down in the corporate book.

 

The rating agency said while these steps provided comfort with respect to any immediate short-term liquidity requirement, concerns regarding the stability of the franchise will continue in the near-to-medium term. 

 

With the prospective change in the senior leadership of the bank, the strategy could also get calibrated on key aspects such as loan growth targets and the presence in certain business segments.

 

A constant focus on improving the quality of liability franchise is also likely to have a bearing on the credit selection and the margin profile of the bank, India Ratings said.

 

IndusInd Bank would report moderate profitability with return on assets (RoA) around one per cent (average of 1.8 per cent over FY23-FY24) in the near-to medium term.

 

Moreover, sustained operating expenses (opex) for higher retail asset focus and the creation of contingent provisions with the existing ₹1,325 crore getting absorbed in Q4FY25 are also likely to put pressure on the RoA in the near-to-medium term.

 

The cost-to-income ratio stood at 47.1 per cent in FY24 and 60 per cent FY25, it added.