IndusInd Bank Q1 net profit plunges 72% to ₹604 crore as it tries to redeem itself from the derivative debacle

IndusInd Bank reported a 72% decline in its net profit to ₹604 crore on Monday, as India’s fifth-largest private lender continues to find fewer takers of its loan offerings in the aftermath of the internal derivative trades scandal, which culminated in the resignations of its CEO, Sumant Kathpalia and deputy CEO Arun Khurana in April.

The bank reported a net interest income of ₹4,640 crore in the first quarter, a 14% decrease from the same period a year ago. Both deposits and loans fell 3% sequentially to ₹3.97 lakh crore and ₹3.33 lakh crore, respectively, for the quarter ended June 30. The loans also declined 4% year-on-year. The revenue for the reporting quarter was ₹6,797 crore, representing a 14% year-on-year decline.

Its net interest margin also fell by 79 basis points to 3.46% for the first quarter. In contrast, its provisions and contingencies increased by 68% to ₹1,760 crore, implying that the bank has set aside more money for potential liabilities. Its net NPA rose by 52 basis points to 1.12%.

Sunil Mehta, chairman of the Board, said that the leadership transition is progressing well. “Our final recommendations are being submitted to the regulator. The Board remains confident of moving forward as per planned timelines,” he said in a statement. He also instilled confidence that the bank is making a “robust recovery” after the bank was hit with scandal last quarter.

IndusInd Bank reported its biggest-ever quarterly loss of ₹2,329 crore in the January-March quarter. This was barely a week after the bank informed that it had unearthed accounting discrepancies to the tune of ₹1,269 crore following an internal audit. The bank had identified discrepancies in the accounting of derivative transactions conducted over the past five to seven years, which were used for hedging its foreign currency borrowings. It admitted to significant discrepancies in its derivative portfolio, resulting in an estimated adverse impact of 2.35% on its net worth. Its net interest income also plunged 43% year-on-year to ₹3,048 crore from ₹5,376 crore, signalling deeper operational stress.

The reversal of fortunes—the bank had reported a net profit of ₹2,349 crore in the same period the previous year—eroded investor confidence, which was further exacerbated by the high-profile exits of its CEO and deputy CEO. However, Ashok Hinduja, the bank's promoter, stood firm. “I express my continued, unequivocal trust in the Chairman & Board of Directors of the bank for their appropriate, swift actions in order to address discrepancies and attendant areas of concern,” he had said during the fourth quarter results.

In a move to restore investor confidence, IndusInd Bank announced last week that its board has approved a ₹30,000 crore fundraising effort, comprising ₹20,000 crore through debt securities and ₹10,000 crore through Qualified Institutional Placement (QIP), or American Depository Receipts (ADRs), or Global Depository Receipts (GDRs). The board also approved the articles of association of the bank, which give the promoters, Hinduja Group, the right to nominate up to two directors to the bank’s board.