The market value of IndusInd Bank plummeted by ₹19,000 crore in a single-day on Tuesday as the private lender’s share crashed by 27%. The largecap bank stock suffered a massive blow as its shares nosedived to a 5-year low of ₹674.55, the lowest level last seen in March 2020, while its market capitalisation slipped to ₹51,102 crore. The shares are down 57% from its 52-week high of ₹1,576 touched on April 8, 2024.

Early today, IndusInd Bank share price opened 10% lower at ₹810.55 on the BSE, continuing its losing streak for the fifth straight session. Extending opening losses, the stock dropped as much as 27.9% to hit a low of ₹649 as sell-off intensified after brokerages downgraded IndusInd Bank shares after the back-to-back adverse events.

The sharp correction in IndusInd Bank shares also triggered sell-off in banking space, with the Nifty private bank index sliding 1.4%. City Union Bank, Bandhan Bank, RBL Bank, IDFC First Bank, and Axis Bank ended in the negative terrain, falling in the range of 1-5%. Bucking the trend, ICICI Bank shares surged 2.5%, while HDFC Bank, Kotak Mahindra Bank, Federal Bank settled with marginal gains.

What fuelled sell-off in IndusInd Bank shares?

Investors turned jittery after the lender informed exchanges about huge accounting discrepancies in its forex derivatives portfolio, which is expected to have an adverse impact on its net worth and profitability. Based on preliminary findings, the accounting flaws are estimated to have an impact of 2.35% on its net worth, amounting to ₹1,580 crore. However, the final figures may vary following completion of the external audit in Q4 FY25.

In an exchange filing last evening, IndusInd Bank said that during internal review of processes relating to other asset and other liability accounts of the derivative portfolio, bank observed some discrepancies in the account balances. “Bank's detailed internal review has estimated an adverse impact of approximately 2.35% of bank’s net worth as of December 2024.”

The bank further said that it has appointed an external agency to independently review and validate the internal findings. “A final report of the external agency is awaited and basis which the bank will appropriately consider any resultant impact in its financial statements. The bank's profitability and capital adequacy remains healthy to absorb this one-time impact,” it added.

The development came days after the Reserve Bank of India (RBI) granted only a one-year extension to its incumbent CEO Sumant Kathpalia, instead of the three-year term recommended by the board. 

Domestic brokerage house Nuvama has raised concerns over delayed disclosure, saying that it would impact credibility and earnings of the bank promoted by Hinduja Group. “The time line is discomforting—the CFO resigned just before the Q3 earnings, the CEO recently got a one-year extension instead of three and now a derivatives-induced dislocation,” it said in a note.

Several brokerages have downgraded IndusInd Bank shares and lower target price amid these negative developments. Nuvama has downgraded IndusInd Bank shares to ‘Reduce’ from ‘Hold’, and cut the target price to ₹750 per share. Emkay Global has downgraded the stock to ‘Add’ from ‘Buy’ from the medium-to-long term perspective, slashing price target by 22% to ₹875 from from ₹1,125 earlier. Earlier this week, foreign brokerages UBS and BofA Securities downgraded IndusInd Bank shares to "sell", and lowered price targets, after the RBI granted only a one-year extension to its incumbent CEO. While Jefferies and Citi have retained their "buy" rating on the stock, citing attractive valuations.

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