IndusInd Bank Shares Crash 20 Per Cent: Hits 30-Month Low Amid Derivative Discrepancies

IndusInd Bank shares hit a 20 per cent lower circuit on March 11, plunging to Rs 720.50 on the Bombay Stock Exchange (BSE). This marks a significant decline, bringing the stock to a 30-month low. The sharp fall has raised concerns among investors, with market experts citing internal financial discrepancies as the primary reason for the heavy sell-off.

Massive Block Deal Activity

During early trade, around 15.8 lakh shares of IndusInd Bank were exchanged in a block deal, indicating strong trading activity. This high volume of transactions suggests that institutional investors or large stakeholders may be offloading their holdings amid concerns over the bank’s financial health.

Why Is IndusInd Bank Stock Falling?

The stock is under selling pressure after the bank revealed on March 10 that its net worth could decline by approximately 2.35 per cent due to discrepancies in its derivative accounts. The bank disclosed that these discrepancies stem from internal derivative trades that failed to comply with new regulations set by the Reserve Bank of India (RBI), effective from April 2024.

IndusInd Bank CEO Sumant Kathpalia, in a conference call, acknowledged that the discrepancies were identified between September and October 2023. However, the bank emphasised that these issues were related to internal derivative trades and did not affect client accounts. Despite these assurances, analysts and investors remain cautious.

Impact of Internal Trade Discrepancies

Deputy CEO Arun Khurana confirmed that the bank has stopped engaging in internal derivative trades. He stated that any such trades conducted before April 1, 2024, have been unwound and appropriately accounted for under mark-to-market valuations.

While the bank has initiated corrective measures, analysts believe that the credibility damage is significant. Market experts argue that the issue reflects weak internal controls, which could hurt investor confidence in the long run. Analysts from Macquarie stated that the situation raises serious questions about the bank’s internal processes, while Jefferies also highlighted concerns over governance and risk management.

RBI’s Close Watch on IndusInd Bank

Sources suggest that the RBI is closely monitoring the bank’s derivatives issue. The banking regulator has been actively reviewing IndusInd Bank’s risk management and compliance mechanisms to ensure adherence to financial regulations.

Bank’s Statement on Derivatives Loss

In an official regulatory filing, IndusInd Bank acknowledged that the discrepancies were detected during an internal review of derivative portfolios and asset-liability accounts. This review was conducted following the implementation of RBI’s revised guidelines on the classification, valuation, and operation of investment portfolios.

The bank reassured investors that it has appointed an external agency to independently review and validate the findings. The final report is awaited, and based on its conclusions, the bank will take any necessary financial adjustments. IndusInd Bank also emphasized that despite the one-time impact, its profitability and capital adequacy remain strong.

CEO Sumant Kathpalia’s Reappointment and Investor Concerns

In a separate development, the RBI approved the reappointment of Sumant Kathpalia as Managing Director and CEO of IndusInd Bank for only one year, from March 24, 2025, to March 23, 2026. This marks the second consecutive time that the RBI has granted a shorter tenure than the three-year term recommended by the bank’s board.

The decision has raised concerns among investors, as a shorter tenure could create uncertainty regarding the bank’s leadership stability. A prolonged leadership uncertainty may further affect investor sentiment and the bank’s stock performance in the near future.

The sharp decline in IndusInd Bank’s stock price has been triggered by discrepancies in its derivative accounts, weak internal controls, and concerns over leadership continuity. With the RBI keeping a close watch and an external audit in progress, investors are expected to tread cautiously. The coming months will be crucial in determining the bank’s ability to restore market confidence and stabilise its stock performance.