IndusInd Bank Limited’s shares recently experienced significant fluctuations.
The stock initially dropped by 27%, with a steep fall of 32% over just two days, reaching an intraday low of Rs 605.40.
However, it later rebounded, climbing by 7% to an intraday high of Rs 694.75.
This volatility was triggered by negative news concerning discrepancies in the bank’s futures-options portfolio.
Details of the Discrepancy
Auditors attempted to downplay the Rs 2,100 crore loss arising from the accounting discrepancy, assuring that the bank had sufficient capital to absorb the impact.
IndusInd Bank’s CEO and Managing Director, Sumant Kathpalia, revealed that the issue was identified around September-October of the previous year and reported to the Reserve Bank of India (RBI) last week.
An external agency has been appointed to investigate the matter, with a report expected by early April. Preliminary estimates suggest potential losses affecting the March quarter.
Analysts have noted that delayed disclosures have heightened investor concerns, possibly more so than issues like backdated non-performing loans (NPLs).
In an interview with CNBC-TV18, Kathpalia mentioned that the anomaly was detected on October 24, leading to an immediate internal review and the engagement of an external agency.
He clarified that the anomaly developed over 7 to 8 years, and once its extent was understood, the bank convened a board meeting to disclose the details.
He assured that the bank has been transparent, emphasizing that this is a one-time incident expected to be resolved within the current quarter.
He also expressed optimism about the bank’s return to growth and profitability.
Promoter Ashok Hinduja also addressed concerns, reassuring shareholders that the anomaly was identified by the bank’s management and not by auditors or regulators.
He mentioned that the promoters are seeking RBI approval to increase their stake in the bank from 15% to 26%. Once approved, they plan to inject additional capital into the bank.
Revised Target Prices
Following these developments, several brokerage firms have revised their outlook for IndusInd Bank:
Motilal Oswal: Changed stance to Neutral and lowered the target price to Rs 925.
Kotak Institutional Equities: Downgraded the rating to REDUCE from BUY and reduced the target price to Rs 850 from Rs 1,400, noting that it may take several quarters to rebuild investor confidence.
Emkay Global: Downgraded the rating to ADD from BUY and reduced the target price to Rs 875.
