IndusInd Bank faced a sharp 27% decline in its stock price during intraday trade, triggering panic among investors. This sharp decrease is primarily due to the bank's recent disclosure of accounting discrepancies related to foreign exchange derivatives, which could result in a one-time earnings impact estimated between ₹1,500 crore to ₹2,000 crore.
The issue stems from an underestimation of hedging costs associated with past forex transactions, leading to a 2.35% reduction in the bank's net worth as of December 2024. Analysts have criticized the bank's internal controls, suggesting that this oversight reflects weaknesses in their financial management systems. The steep fall was driven by concerns over an accounting issue that recently came to light. However, Ashok Hinduja, Chairman of IndusInd International Holding, stepped in to reassure investors, emphasizing the bank’s financial stability, management transparency, and future plans to address the situation.
Transparency in Addressing Issues
Hinduja highlighted that IndusInd Bank’s management proactively identified the accounting issue, rather than it being flagged by auditors. He praised the bank’s transparency in acknowledging the problem and expressed confidence in CEO Sumant Kathpalia’s ability to provide clear answers.
Despite the concerns, Hinduja reassured investors that IndusInd Bank’s capital adequacy remains strong at over 15%, even after provisioning. This indicates that the bank’s core financial health is not significantly impacted by the issue.
Accounting Issue and Shareholder Confidence
Hinduja clarified that he became aware of the accounting issue only recently and could not explain why it was not disclosed earlier. However, he stressed that IndusInd Bank’s management has successfully handled various challenges over the past months.
Addressing financial concerns, he downplayed the impact, noting that the ₹1,600 crore issue is relatively small in the context of the bank’s overall financials. He urged shareholders not to panic, calling such challenges routine in the banking sector.
Future Plans: Capital Infusion and Stability
To further reassure investors, Hinduja confirmed that once regulatory approval from the Reserve Bank of India (RBI) is obtained, IndusInd International Holding will immediately infuse additional equity into the bank. The request for an increased stake is currently under RBI’s consideration.
He also addressed concerns regarding pledged shares, stating that there have been no margin calls and reaffirming the financial strength of the promoter shareholders. Additionally, he noted that the IndusInd Bank Board would take a call on succession planning when necessary.
IndusInd Bank’s sharp decline in stock price has raised investor concerns, but Ashok Hinduja’s statements aim to restore confidence. With strong capital adequacy, management transparency, and planned capital infusion, the bank is taking steps to stabilize its position. The coming weeks will be crucial in determining investor sentiment and regulatory developments.
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