IndusInd Bank likely to flash red in Q4FY25 amid accounting lapses

Derivative portfolio losses and MFI income discrepancies may result in a Rs 200 crore Q4FY25 net loss and a structural hit to core margins, say analysts

Private sector lender IndusInd Bank, reeling from multiple accounting lapses, is likely to report a net loss in the fourth quarter of financial year 2024-25 (Q4FY25), weighed down by ₹2,000 crore hit to its profit and loss account due to discrepancies discovered in its derivatives portfolio. The bank will report its Q4 and FY25 earnings on Wednesday (May 21).

 

According to a consensus estimate of 12 analysts polled by Bloomberg, the bank is expected to report a net loss of over ₹200 crore in Q4FY25.

 

Additionally, its net interest margin (NIM) is expected to contract sharply due to the various accounting lapses the bank has reported so far, including in the microfinance business. The bank’s NIM – a measure of profitability of banks – stood at 3.93 per cent at the end of December 31, 2024. 

 

In Q3FY25, the bank had reported a net profit of ₹1,402 crore, down 39 per cent year-on-year (Y-o-Y) due to sharp rise in provisions, owing to slippages in the microfinance portfolio. In Q4FY24, the bank’s net profit stood at ₹2,349 crore.

 

So far in the first nine months of the financial year under review (9MFY25), the bank’s net profit stood at ₹4,904 crore, down 26 per cent Y-o-Y from ₹6,628 crore in 9MFY24. 

 

“The impact of derivatives exposure will be partly taken through the interest income line and the rest through trading gains. Recent unearthing of the incorrectly recorded interest income in the MFI business increases the negative impact on net worth to 3.1 per cent post-tax, from 2.35 per cent earlier. The margin impact due to the MFI business accounting lapse works out to around 17 basis points (bps) and the RoA (return on assets) impact to nearly 10 bps. Based on these accounting lapses, we believe core margin could be structurally lower by 25-30 bps,” said InCredi Equities in a note. 

 

The bank in March disclosed to the exchanges that in an internal review it had found discrepancies in its derivatives portfolio, which would have an adverse impact of 2.35 per cent on its net worth as of December 2024. Further, it engaged PwC to review the estimate of the loss in the derivatives portfolio. Based on the PwC report’s findings, the bank stated that the discrepancies would have an adverse post-tax impact of 2.27 per cent on its net worth as of December 2024.

 

The bank had also engaged Grant Thornton to find out the root cause behind the discrepancy in the derivatives portfolio among other things. Based on its findings, the bank said the cumulative adverse accounting impact on the profit and loss account of the bank as of March 31, 2025, would be ₹1,959.98 crore.

 

Additionally, the bank disclosed that its internal audit department (IAD) has discovered ₹674 crore was incorrectly recorded as interest over three quarters of FY25, which was fully reversed as on January 10, 2025, in the bank’s microfinance business. Also, the IAD discovered unsubstantiated balances aggregating to ₹595 crore in “other assets” accounts of the bank, which were then set off against corresponding balances appearing in “other liabilities” accounts in January 2025.