IndusInd Bank stock crashes as derivative portfolio hit invites downgrades

IndusInd Bank share price: IndusInd Bank share came under heavy selling pressure on Tuesday, March 11, 2025, after a massive discrepancy in the private bank’s derivative portfolio invited a string of downgrades from analysts amid low earnings visibility.

The stock crashed 20 per cent, hitting its lowest level since November 2020 to an intraday low of Rs 720 per share. IndusInd Bank share, however, recouped margianlly to trade 18.7 per cent down at 10:00 AM. By comparison, the benchmark BSE Sensex index today was down 0.35 per cent.

Analysts at Nuvama Institutional Equities, for instance, have downgraded the scrip to ‘Reduce’ from ‘Hold’, feeling uncomfortable with a series of negative developments at the bank, and fearing a hit on the lender’s “credibility”.


“IndusInd Bank has faced multiple negative events in the current financial year (FY-2024-25; FY25), including microfinance stress, resignation of the chief financial officer (CFO) ahead of the December quarter results, only a one-year extension for the incumbent chief executive officer (CEO) instead of three, and now a potential hit on the net worth due to the portfolio discrepancy. A negative derivatives’ disclosure has the potential to unnerve investors more than a back-dated bad loan disclosure,” analysts at the brokerage said in their note on Tuesday. It has cut the target price on IndusInd Bank to Rs 750 from Rs 1,115.

On Monday, India’s fifth largest private bank disclosed to shareholders that during an internal review, the bank identified certain discrepancies where accounting of losses on forex derivatives/swap transactions executed prior to April, 2024 (over the past 5-7 years), to hedge forex deposits/debt via prop-desk (not related to clients), were not recognised through net interest income (NII).


The bank, however, recognised the corresponding treasury gains in the Profit and Loss (P&L) account.

Notably, the practice of derivatives/swap transactions were stopped after the Reserve Bank of India prohibited banks from conducting internal trades/hedging effective April 1, 2024.

The bank’s internal committee, now, estimates the losses to be worth Rs 2,100 crore (pre-tax) and roughly Rs 1,580 crore (post-tax), which may hit the net worth by 2.35 per cent. Further, IndusInd Bank said that it shall take the hit through P&L which, coupled with accelerated provisions on the MFI portfolio, shall push the bank into losses during the January to March quarter (Q4) of the current financial year.

The bank has appointed an external auditor to confirm the actual impact. The RBI, it added, is aware of the issue.

While the bank said it would disclose all the information, relating to these trades, transparently once the external audit is over, analysts see the need of frequent external audits impacting credibility and valuation.

“Given the back-to-back adverse events, including a shorter term for MD Sumant Kathpalia, and unveiling of past accounting discrepancies impacting FY25 return on assets (RoA) and net worth, we cut our share price target on IndusInd Bank to Rs 875 from Rs 1,125. We believe the stock should react adversely in the near-term, to the recent events as well as to the elevated stress in MFI, and hence remain under pressure,” said analysts at Emkay Global Financial Services. They have reduced their rating from ‘Buy’ to ‘Add’.

"While the financial impact of the discrepancy might be minimal, the issue has raised concerns about credibility. Trust is a crucial part of any investment thesis, and it may take some time to rebuild this trust and make the stock investable again. We downgrade the stock to 'Reduce' from 'Buy' and cut the target price to Rs 850 (from Rs 1,400). We cut our FY2025E earnings by 25 per cent to reflect the recent development," said Kotak Institutional Equities.



Higher MFI stress
Apart from the one-time hit due to the derivative portfolio hit, the management anticipates elevated MFI stress and credit costs in Q4FY25.

While the management expects stress levels in the microfinance pool to improve in Q1FY26, analysts expect MFI stress to normalize Q2FY26 onwards.

Analysts at Motilal Oswal Financial Services have downgraded the stock to ‘Neutral’ and cut the target price to Rs 925, anticipating near-term pressure in the stock.

That said, analysts believe the bank’s board will expedite the process of evaluating both internal and external candidates for a suitable successor to alleviate investor concerns and improve confidence in the bank’s operations.