Shares of private lender IndusInd Bank are likely to see pressure on Wednesday as investor concerns grow after the company's chief executive Sumanth Katpalia resigned from the post. He cited moral responsibility for accounting lapses in the derivatives portfolio. Earlier, the Bank's deputy CEO Arun Khurana had also stepped down.
The stock has faced selling pressure since the details of gaps came into the public domain. The shares fell 13% on a year-to-date basis and 43% in the last one year period.
On Wednesday, analysts said IndusInd Bank shares are set open gap down of about 5-6% in the best case scenario and might go down even more if the overall market is down given the tensions with Pakistan.
"There is a lot of distrust in the Bank. Currently, mutual funds have a significant holding, which is saving the stock from crashing outright. If we look at the shareholding pattern, about 60% is pledged. When the margins hit the threshold, the crash will likely be deeper. From investors point of view, it is better to book losses and move on," said Ameya Ranadive, Sr Technical Analyst at StoxBox.
The Bank's corporate governance crisis took the market by surprise as it is a credible player in the private lending space. IndusInd disclosed in March certain discrepancies in its derivatives portfolio. These gaps could adversely impact its net worth with about Rs 1,960 crore hit reflecting in FY25 earnings.
The discrepancies primarily arose from internal derivative trades between the asset-liability management desk and the treasury, which used accrual accounting, while external counterparties' trades were marked to market. This mismatch allowed IndusInd Bank to defer losses internally while prematurely booking gains externally, overstating earnings.
The gaps were confirmed by an external audit conducted by Grant Thornton. These trades, primarily used to hedge foreign currency exposures, were not accounted for correctly, leading to the significant financial impact.
In response to the crisis, IndusInd Bank has discontinued internal derivative trading since April 1, and is undertaking a realignment of senior management roles to strengthen accountability. The Reserve Bank of India has also taken note of the situation, urging the bank to address the governance issues promptly.
The bank plans to absorb the entire loss through its Profit and Loss account in the fourth quarter of FY25, without dipping into its reserves. Despite the setback, IndusInd Bank maintains that its capital adequacy remains strong and expects to report a profit for FY25. The company will announce its fourth quarter earnings in May.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
The stock has faced selling pressure since the details of gaps came into the public domain. The shares fell 13% on a year-to-date basis and 43% in the last one year period.
On Wednesday, analysts said IndusInd Bank shares are set open gap down of about 5-6% in the best case scenario and might go down even more if the overall market is down given the tensions with Pakistan.
"There is a lot of distrust in the Bank. Currently, mutual funds have a significant holding, which is saving the stock from crashing outright. If we look at the shareholding pattern, about 60% is pledged. When the margins hit the threshold, the crash will likely be deeper. From investors point of view, it is better to book losses and move on," said Ameya Ranadive, Sr Technical Analyst at StoxBox.
The Bank's corporate governance crisis took the market by surprise as it is a credible player in the private lending space. IndusInd disclosed in March certain discrepancies in its derivatives portfolio. These gaps could adversely impact its net worth with about Rs 1,960 crore hit reflecting in FY25 earnings.
The discrepancies primarily arose from internal derivative trades between the asset-liability management desk and the treasury, which used accrual accounting, while external counterparties' trades were marked to market. This mismatch allowed IndusInd Bank to defer losses internally while prematurely booking gains externally, overstating earnings.
The gaps were confirmed by an external audit conducted by Grant Thornton. These trades, primarily used to hedge foreign currency exposures, were not accounted for correctly, leading to the significant financial impact.
In response to the crisis, IndusInd Bank has discontinued internal derivative trading since April 1, and is undertaking a realignment of senior management roles to strengthen accountability. The Reserve Bank of India has also taken note of the situation, urging the bank to address the governance issues promptly.
The bank plans to absorb the entire loss through its Profit and Loss account in the fourth quarter of FY25, without dipping into its reserves. Despite the setback, IndusInd Bank maintains that its capital adequacy remains strong and expects to report a profit for FY25. The company will announce its fourth quarter earnings in May.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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