IndusInd Bank shares drop 4% as RBI okays short-term CEO extension

Following the Reserve Bank of India’s (RBI’s) approval for only a one-year extension to IndusInd Bank’s Managing Director (MD) and Chief Executive Officer (CEO) Sumant Kathpalia, instead of the three-year tenor requested by the bank’s board, brokerages expect the bank to initiate the process of selecting a new CEO. Meanwhile, the bank’s shares dropped 3.86 per cent on Monday to close at ₹900.6, while broader indices showed only marginal movement.

 

This is the second consecutive time that the banking regulator has approved a shorter tenor, despite the board requesting a full three-year term.

 

“In the next few months, we believe the board will likely deliberate over its MD and CEO succession plans, which may include external candidates as well. We foresee heightened uncertainty in the near term, including possible kitchen sinking, and probable names for the MD and CEO position,” ICICI Securities said in a note.

   

On Friday, the private sector lender informed exchanges that the RBI had conveyed its approval for the reappointment of Kathpalia as MD and CEO for a one-year term, extending until March 23, 2026.

 

“The one-year term extension by the RBI likely intends to provide the bank’s board with sufficient time to identify a suitable replacement,” said Emkay Global Financial Services.

 

“Although the RBI has not provided any explanation for granting only a one-year extension, we believe it is not satisfied with the progress on the conditions set during the earlier term extension, amid other concerns, including mismanagement of the microfinance portfolio leading to higher non-performing assets (NPAs),” Emkay added, while also noting that the short one-year term could lead to strategic uncertainty amid the ongoing growth and asset quality challenges. 

 

IndusInd Bank reported weak results for the October-December quarter (Q3) of 2024-25 (FY25), attributed to stress in its microfinance portfolio. This led to overall muted loan growth, lower net interest margins, and higher provisioning. The bank’s gross NPAs have been gradually increasing since the first quarter of FY25, with gross NPAs reaching 2.3 per cent at the end of Q3. Profitability has also been impacted due to asset quality stress.

 

“IIB’s (IndusInd Bank is often referred to by its stock ticker IIB) CEO may decide to hang up his boots early, given the suboptimal tenor approval. Or there might be an appointment of another CEO after the completion of his one-year tenor, who, given the current trends, could be a public sector undertaking (PSU) banker,” Macquarie said in a report.

 

Recently, Bandhan Bank and RBL Bank appointed CEOs from public sector banks. “We believe that appointing a PSU banker as CEO for IIB could lead to a structural derating,” Macquarie added.

 

Kotak Securities observed in a note that there is no financial impact from the development and maintained its positive rating, expecting no changes in strategy in the short term. “The pain in the microfinance sector showed some signs of stability, and we are seeing some signs of improvement … We are still some time away from normalisation and hence, credit costs and slippages would continue to remain high, but we are playing for a rerating when the trend reversal is firmly in place,” the report said.

 

Kathpalia, who joined IndusInd Bank in 2008, became MD and CEO in March 2020, succeeding Romesh Sobti. Before joining IndusInd, he worked at multinational banks like Citibank, Bank of America, and ABN AMRO. He is a qualified chartered accountant and a graduate of BCom (Hons) from Hindu College, Delhi University. 

Nifty snaps 3-day gaining streak 

 

The benchmark Nifty 50 index fell 0.41 per cent on Monday, snapping its three-day gaining streak, with US tariff uncertainties weighing on investor sentiment. The index rose over half a per cent in opening trade but came off 1.1 per cent from day’s high dragged by losses in Larsen & Toubro, Reliance Industries and Zomato.  The Sensex, after hitting a day’s high of 74,741, ended at 74,116, down 217 points, or 0.3 per cent, over previous day’s close. The broader market also saw a fresh bout of selloff with the Nifty Midcap 100 and the Nifty Smallcap 100 declining 2 per cent each.