Crisil Puts IndusInd Bank's ₹5,500 Crore Bonds On Negative Watch Amid Audit, Derivatives Woes

Mumbai: Global credit rating agency Crisil has placed IndusInd Bank’s long-term debt instruments on ‘Rating Watch with Negative Implications.’

This includes Rs 4,000 crore worth of tier II bonds and Rs 1,500 crore of infrastructure bonds.

The move comes after a series of recent developments at the bank that have raised concerns about its internal controls and management stability.

According to Crisil, the rating action follows the resignation of two senior executives at the bank, along with the bank's disclosure that its internal audit department is reviewing the microfinance business.

This review was prompted by certain concerns that came up during the finalisation of the bank’s accounts.

Earlier in March, the bank had also revealed an issue with how it had accounted for some derivatives, which further deepened the worries.

While Crisil noted that the bank has not seen any major outflow in total deposits in the past two months, there has been some decline in deposits from retail and small business customers.

As of March 31, the bank had total deposits of Rs 4.11 trillion, with a current and savings account (CASA) ratio of 32.8 per cent.

This compares to Rs 4.09 trillion in deposits and a CASA ratio of nearly 34.9 per cent as of 31 December 2024.

Retail and small business deposits dropped from Rs 1.89 trillion to Rs 1.85 trillion in the same period.

The rating agency stated that it will continue to monitor the situation closely, especially the steps taken by the bank to strengthen its financial controls and maintain operational stability.

It will also watch how these issues impact the bank's profitability and deposit patterns.

The situation began in March when IndusInd Bank disclosed that an internal review had uncovered discrepancies in its derivatives portfolio.

The bank estimated this would reduce its net worth by 2.35 per cent as of December 2024.

PwC was then hired to validate these findings and estimated a loss of Rs 1,979 crore in the derivatives portfolio as of 30 June 2024, with a post-tax impact of 2.27 per cent on net worth.

Later, the bank brought in independent firm Grant Thornton to investigate the root cause.

Their report found that incorrect accounting of internal derivative trades, particularly during early termination, led to recording notional profits that didn’t actually exist. This caused the discrepancies.

According to the final assessment, the total adverse impact on the bank's profit and loss account as of 31 March is Rs 1,959.98 crore.

The rating agency added that despite these setbacks, it had earlier assessed that the bank’s capital position and profitability before provisions would be able to absorb the financial hit.

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