At Tuesday’s low of ₹329.25, the stock price of IndusInd Bank--one of India’s leading private banks--has hit its second lower circuit of 10%. The first 10% lower circuit was triggered when the stock tanked to ₹370.4 from the Monday’s close of ₹411.55.

The level of anxiety on the IndusInd Bank counter is for real: Monday’s closing price was its opening as well as the day’s high today.

The recent tale of IndusInd Bank’s circuits began on March 24 when the stock fell to its new 52-week low of ₹235.6 after hitting four lower circuits. On March 25, the counter witnessed one more lower circuit as the stock came down to ₹281.15.

But, March 26 was different, as IndusInd Bank’s stock price was on an upswing. A total of eight upper circuits pulled up the bank’s share price from ₹331.3 to ₹436.7. From its lowest to highest, the stock saw a rise of ₹105.4 or 31.8%.

In terms of the day’s share price movements, on March 26, IndusInd Bank had gained 50%, or ₹150.6, a share at the day’s high of ₹451.8 from its previous close of ₹301.2. On the following day, the counter saw one lower and two upper circuits.

Compared to the lower circuit price of ₹393.3 a share, the stock has gained ₹131, or 33.1% in comparison to ₹524.3-–the higher of the day’s two upper circuits. And, at the day’s high of ₹542.3, the stock had gained ₹105.35, or 24.1% from March 26’s close of ₹436.95.

However, the current week has seen a total of three lower circuits--one at ₹369.9 a share on March 30 (Monday) and two at ₹370.4 and ₹329.25 a share on Tuesday. The divergence in IndusInd Bank’s share price performance is such that the stock is among the biggest losers on the BSE.

Let's look at the dates in the tale of the 20 circuits-–10 each on the lower and upper sides. It was on March 23 when the bank’s board intimated the stock exchanges that March 24 would be the last day of the tenure of Romesh Sobti, the lender’s managing director and CEO since 2008. Sumant Kathpalia, who the hank had announced as Sobti's successor, was to take charge the same day.

During his 12-year tenure at the bank, Sobti had strategically built a strong retail franchise for the bank and also diversified into small and medium enterprises (SMEs) to safeguard against otherwise riskier corporate borrowers. The bank’s merger with Bharat Financial Inclusion (erstwhile SKS Microfinance) was Sobti’s smart move to de-risk its loan book as well as cross-sell and grow its retail franchise.

However, the crisis which followed the Infrastructure Leasing & Financial Services (IL&FS) fiasco exposed IndusInd Bank to the vagaries of mounting non-performing assets (NPAs), something that Sobti has managed to keep under check in all his years in the corner office. In six quarters between September 2018 and December 2019, IndusInd Bank’s gross NPAs grew from ₹6,755 crore to ₹9,074 crore–-an increase of ₹2,319 crore, or 34.32%.

In the same period, the bank’s net NPAs also grew from ₹920 crore to ₹1,300 crore–-an increase of ₹380 crore or 41.29%. And the gross and net NPA ratios of 1.09% and 0.48% in September 2018 grew to 2.18% and 1.05%, respectively, by December 2019.

The recent crisis at YES Bank has only aggravated the challenges for IndusInd Bank as well as Kathpalia, who in his earlier avatar at IndusInd Bank and also at ABN Amro under Sobti’s leadership, had been overseeing the consumer banking business. In an analyst call on Monday (March 30) evening, Kathpalia revealed that in the aftermath of the YES Bank crisis, IndusInd Bank has seen a run-down of deposits to the extent of around 10%-11%; while 70% depletion came from state governments’ withdrawals, the other 30% was from corporates.

“However, it (IndusInd Bank) has replaced the bulk of these deposits by CDs (certificates of deposit) and borrowings (including refinancing/forex), which we believe should inch up funding cost in the near term, weighing in on margins,” said a note prepared by Emkay Global’s analysts Anand Dama, Neelam Bhatia, and Mayank Agarwal. “Eventually the bank plans to focus on retail deposits (via expanding branches), which will take time to build and thus the bank’s credit growth will be calibrated, tracking deposit momentum and not vice-versa as it happened in the past,” the note added. “The bank also plans to rebalance its book toward consumer banking, which should lead to margin/RoA expansion in the long run.”

While Dama and his colleagues at Emkay Global continue with their ‘buy’ rating on IndusInd Bank, the challenges that lie ahead for Kathpalia are evident in the trio’s new 12-month target price of ₹630 a share at the current market price (CMP) of ₹413 on March 30. The trio’s target price projects an upside of ₹217 a share or 52.54%.

However, on January 14, at the then CMP of ₹1,482 a share, Emkay Global had pegged the 12-month target of ₹1,725 in its ‘buy’ report. While the upside then was pegged at 16.39%, the severe correction that followed has led to over 72.13% reduction in the CMP, while the target prices have seen a reduction of 63.48%.

The current crisis which the Coronavirus-related lockdown brings upon the economy and the banking sector will have its own set of challenges for IndusInd Bank. At Monday's conference call, Kathpalia has indicated that as of now cards, personal loans, real estate and loan against property (LAP) are showing early signs of disruption, while diamond and commercial vehicle (CV) portfolios are well-tested across cycles with higher customer vintage and should bounce back as normalcy returns.

“It (IndusInd Bank) believes that the RBI (Reserve Bank of India) moratorium of three months (till May 31) should help manage this temporary disruption unless the situation worsens,” the Emkay Global trio wrote. “The bank has seen deterioration in asset quality due to corporate slippage which we believe will accelerate after the recent lockdown, led by the stress in retail/SME and some lumpy corporate stress,” the trio added.

Clearly, while Sobti took the corner office at IndusInd Bank at the peak of the global financial crisis, his predecessor Kathpalia has stepped into his shoes as a time when the Coronavirus pandemic is being seen as a cause of another global recession for the world to brace and survive.

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