IndusInd Bank gains 5% on RBI's reassurance on lender's financial health

The stock price of IndusInd Bank had tanked a 32 per cent in three days between March 6 and March 11.

IndusInd Bank share price: Shares of private banking company IndusInd Bank gained 5 per cent to Rs 707 on the BSE in Monday’s intra-day trade after the Reserve Bank of India (RBI) reassured depositors about the private lender’s financial health.

 

An accounting error leading to a loss of 2.35 per cent of its capital, estimated around Rs 1,500-2,000 crore, resulted in the stock tanking over 27 per cent last Wednesday. Urging depositors not to react to speculation, RBI confirmed close monitoring, and directed the Board to complete remedial actions in January to March quarter (Q4FY25).

 

The stock price of IndusInd Bank had tanked 32 per cent in three days between March 6 and March 11. It has recovered 17 per cent from its previous week low of Rs 605 touched on Wednesday, March 12.

 

 

“The Reserve Bank would like to state that the bank is well-capitalised and the financial position of the bank remains satisfactory. Based on the disclosures available in public domain, the bank has already engaged an external audit team to comprehensively review their current systems, and to assess and account for the actual impact expeditiously,” RBI said in statement on IndusInd Bank.

 

As per auditor-reviewed financial results of the bank for the quarter ended December 31, 2024 (Q3FY25), the bank has maintained a comfortable Capital Adequacy Ratio of 16.46 per cent and Provision Coverage Ratio of 70.20 per cent. The Liquidity Coverage Ratio (LCR) of the bank was at 113 per cent as on March 9, 2025, as against regulatory requirement of 100 per cent, RBI said. CLICK HERE FOR FULL DETAILS

 

RBI’s reassurance on IndusInd Bank’s financial health may provide stability by easing depositor concerns. However, investor sentiment will remain cautious until the bank fully addresses the accounting issue in Q4FY25, ICICI Securities said in a note.

 

IndusInd Bank is a Hinduja group promoted to a newer age private sector bank and is the fifth largest private bank in India. The bank has a full product suite with strong moat in vehicle and micro finance business. The bank has a strong presence with a pan India branch network of 3063 branches (2993 ATMs) and a large customer base of around 41 million.

 

Meanwhile, despite board approval, RBI has provided an extension of 1 year instead of 3 years to the incumbent MD & CEO. This was for the second time when MD & CEO was allowed sub-optimal extension (i.e less than 3 years).

 

At current valuation (~0.7x FY27E ABV), the stock seems to be cheap, however, given challenge in microfinance exposure and uncertainty surrounding leadership and business model, analysts at ICICI Securities said on March 11 research report that they downgrade the stock from Buy to Hold with revised target price of Rs 800 per share.

 

Mirae Asset Sharekan downgraded the stock from Buy to Hold with a revised price target of Rs 750. A series of negative surprises, including the CFO’s resignation, the CEO’s shorter tenure extension by the RBI, and a potential derivative portfolio loss, has driven our downgrade, the brokerage firm said.

 

An external agency has been appointed to validate internal findings, but repeated risk management lapses raise concerns over internal processes and regulatory scrutiny. Despite cheap valuations (0.7x FY26E BV), uncertainty around management stability, potential regulatory interventions, and muted earnings visibility make it difficult to build a strong investment case, the analysts said.

 

Key turnaround catalysts include no further adverse impact from the external audit, stronger internal controls, accountability, and corrective actions, no additional RBI intervention, hiring an experienced external CEO (preferably private sector), earnings recovery via asset quality improvement in MFI/unsecured retail, and pPromoter stake increase post regulatory approval, the brokerage firm said.