IndusInd Bank hits lowest level since Nov 2020; why are the shares falling?

The stock hit an intraday low of Rs 695.25 on Tuesday. It has more than halved from its 52-week high level of Rs 1,576, which it touched on April 8, 2024.

IndusInd Bank share price hit a 51-month low of Rs 695.25 as it plunged 23 per cent on the BSE in Tuesday's intraday trade. The slide in IndusInd Bank shares came after the private bank said on Monday that it expects a 2.35-per cent decline in its net worth due to discrepancies in its derivative accounts, found during an internal review.  The stock price of the private lender was quoting at its lowest level since November 2020. It recorded its sharpest intraday fall since March 24, 2020, when the stock tanked 30 per cent. With this, the market value of IndusInd Bank stock has more than halved, dropping 56 per cent, from its 52-week high level of Rs 1,576 touched on April 8, 2024. It has corrected 66 per cent from its record high price of Rs 2,037.90, which it hit on August 3, 2018. 

 

At 11:20 AM, IndusInd Bank share was quoting 22 per cent lower at Rs 702.60 on the BSE as compared to 0.23 per cent decline in the BSE Sensex. The average trading volumes on the counter jumped over 10-fold. As many as 44.05 million equity shares, representing 5.65 per cent of total equity of IndusInd Bank, collectively, changed hands on the NSE and BSE till the time of writing this report.

 

Meanwhile, Nifty Private Bank (down 1.3 per cent) and Nifty Bank (0.71 per cent) were underperforming the Nifty 50 index (down 0.14 per cent) due to the sharp decline in the stock price of IndusInd Bank.

 

ICICI Bank, Canara Bank, State Bank of India (SBI), Federal Bank, and HDFC Bank, however, bucked the trend, and moved higher by up to 2 per cent on the NSE. However, AU Small Finance Bank, IDFC First Bank, YES Bank, and Axis Bank were trading lower in the range of 1 per cent to 4 per cent. IDFC First Bank (Rs 55.03) and YES Bank (Rs 16.11) hit their respective 52-week lows in the intraday trade today.

 

In the past two trading days, the stock has tanked 26 per cent after the Reserve Bank of India (RBI) approved Managing Director (MD) and Chief Executive Officer (CEO) Sumant Kathpalia's term for only one year, instead of the proposed three-year extension requested by the bank’s board.

Why IndusInd Bank shares are falling today?

During an internal review of processes relating to 'Other Asset and Other Liability' accounts of the derivative portfolio, the bank noted some discrepancies in these account balances. The review was done after the Reserve Bank of India (RBI) issued a Master Direction - Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions) in September 2023, including accounting of Derivatives, applicable from April 01, 2024.

 

The internal review, IndusInd Bank said, uncovered discrepancies in its derivatives portfolio, estimating an adverse impact of around 2.35 per cent on its net worth (post tax) as of December 2024. The bank has hired an external agency for validation and awaits final report to ascertain exact impact. The Bank's profitability and capital adequacy remains healthy to absorb this one-time impact, IndusInd Bank said.

 

"Derivatives impact will be absorbed through profit & loss (P&L), mainly net interest income (NII), thereby lowering FY25 estimates. Heightened uncertainty amid challenges in microfinance, shorter extension of leadership, and impact of derivative transactions announced just after the extension, could keep the valuation under pressure," ICICI Securities said in a note.

 

IndusInd Bank’s stock has been on a downward trajectory, facing multiple setbacks, including weakened operating performance and the MD receiving only a one-year term vs a three-year regular term proposed by the board. The recent accounting discrepancies related to derivative transactions have further dampened sentiments and are likely to drive losses in Q4FY25 as the bank absorbs the impact through its P&L, said those at Motilal Oswal Financial Services.