RBI grants only one-year extension to IndusInd Bank CEO Sumant Kathpalia

IndusInd Bank's board had sought a three-year reappointment from RBI

The Reserve Bank of India (RBI) has granted only a one-year extension to Sumant Kathpalia, managing director (MD) and chief executive officer (CEO), IndusInd Bank.

 

This is despite the bank’s Board requesting a three-year reappointment.

 

This marks the second consecutive time that the RBI has approved a shorter tenure instead of a full three-year term for Kathpalia.

 

In an exchange notification on Friday, IndusInd Bank said, “…Reserve Bank of India, vide its letter dated March 6, 2025, has conveyed its approval for re-appointment of Sumant Kathpalia as MD & CEO of the bank for a further period of one year with effect from March 24, 2025 till March 23, 2026.”

 

In September 2024, the Board had approved his reappointment as MD & CEO for a three-year term, from March 24, 2025, to March 23, 2028.

 

Kathpalia has been heading IndusInd Bank since March 2020. Previously, the RBI approved a two-year extension to Kathpalia in March 2023 while the bank's Board had approved his re-appointment for three years.  

 

This is not the first time that RBI has declined to give a three-year extension to a private sector lender’s MD & CEO. In 2021, RBI extended Vishwavir Ahuja’s tenure as RBL Bank’s MD & CEO for one year against three years sought by the lender’s Board. The private sector lender then appointed former Indian Overseas Bank CEO R Subramaniakumar as its MD & CEO.

 

The banking regulator also declined to extend the erstwhile YES Bank co-founder and CEO Rana Kapoor’s term in 2018. Kapoor was finally replaced with Ravneet Gill of Deutsche Bank in 2019.

 

IndusInd Bank reported weak set of numbers in Q3FY25, owing to stress in the microfinance portfolio, which resulted in overall muted loan growth, lower net interest margins (NIMs), and higher provisioning. 

 

Gross non-performing assets (gross NPAs) have been gradually increasing since Q1FY25. At the end of the December quarter, its gross NPAs stood at 2.3 per cent.

 

NIMs have also been under pressure since March 2024 and have declined to 3.93 per cent as of December 2024 quarter. Profitability has also taken a hit due to stress in asset quality of the bank.

 

Stress in the microfinance segment due to overleveraging of borrowers has hit IndusInd Bank the most among major banks.

 

Micro loans make up about 9 per cent of the bank’s loan book as of Q3FY25 and contribute significantly to NIMs since these are highly margin accretive.

 

In Q1FY25, this book was about 11 per cent of the banks’ loan portfolio. In Q3, slippages from the microfinance sector contributed almost 32 per cent of the total slippages for the bank.

 

Amid mounting stress in the segment, the bank was looking to offload ₹1,573 crore of non-performing microfinance retail loans. 

 

Shares of the bank plummeted over 80 per cent since January 2024, when it touched an all-time high of ₹1,688.9. It closed at ₹936.80 on Friday, down 3.53 per cent from the previous day’s close.

 

According to analysts, a key overhang on the bank was the pending RBI approval of Kathpalia’s tenure extension.