IndusInd Bank shares surged 5.32 per cent on Friday, hitting an intraday high of Rs 845.85, after the Reserve Bank of India (RBI) provided an update regarding the accounting discrepancies affecting the private lender. RBI Governor Sanjay Malhotra stated that the issue is expected to be resolved “very soon”, and that the regulator is closely monitoring the bank's progress.

RBI’s assurance boosts investor confidence

In his media address following the Monetary Policy Committee’s (MPC) decision to reduce the repo rate by 50 basis points to 5.5 per cent, Malhotra offered a reassuring outlook on IndusInd Bank. “The IndusInd Bank issue should settle very soon. We will keep monitoring it. The bank has taken enough steps to improve the accounting issues and, on the whole, it is doing well,” he said.

The announcement improved market sentiment, temporarily lifting the stock. However, analysts and investors remain cautious due to the bank’s underlying financial distress and ongoing accounting irregularities.

Accounting issues and financial performance

IndusInd Bank reported a net loss of Rs 2,328.92 crore in the January-March 2025 quarter, a stark contrast to a net profit of Rs 2,349.08 crore in the same quarter last year. This marked a significant deterioration in the bank’s financial health.

For Q4 FY25, the lender’s net interest income (NII) stood at Rs 3,048.3 crore, but provisions spiked to Rs 2,522.08 crore, driven by rising non-performing assets (NPAs) and internal discrepancies.

The bank’s gross NPA ratio jumped to 3.13 per cent in the March quarter, up from 2.25 per cent in the December 2024 quarter, raising concerns over asset quality.

Uncovered discrepancies and internal controls

In its Q4 earnings report, IndusInd Bank revealed a series of alarming findings:

• Rs 172.58 crore was incorrectly recognised as fee income, believed to be linked to an internal fraud case.

• Another Rs 670 crore in the microfinance segment was wrongly booked as interest income in the first nine months of FY25. This amount was fully reversed by January 10, 2025.

• Additionally, unexplained balances worth Rs 595 crore were found in ‘other assets’, which the bank offset against ‘other liabilities’.

These findings triggered regulatory scrutiny, impacted the bank’s reputation, and significantly contributed to the Q4 loss.

Market reaction and expert opinions

Despite the positive reaction on Friday, IndusInd Bank’s stock remains down 19 per cent year-to-date (YTD). On closing, it stood at Rs 785.10, showing only partial recovery from its sharp decline.

Market expert Arun Kejriwal advised investors to avoid the stock at current levels, suggesting it remains a high-risk counter. Similarly, Deven Choksey, MD at DRChoksey FinServ Pvt, recommended that investors stay on the sidelines for now, citing the lack of clarity on complete resolution and impact.

Outlook: cautious optimism

The RBI’s reassurance provides short-term relief, but systemic issues within IndusInd Bank are far from fully addressed. The emergence of internal fraud and misreporting has raised questions about the efficacy of its internal controls, governance, and audit practices.

While the central bank’s intervention indicates an intent to stabilise and support the bank, market experts stress the need for consistent transparency and stringent oversight. The recent correction in the stock reflects market worries about earnings visibility, asset quality, and the potential for more undisclosed risks.

IndusInd Bank’s future performance will heavily depend on:

• How swiftly and effectively it resolves the accounting discrepancies

• The sustainability of its microfinance and retail lending segments

• Its ability to restore investor trust and strengthen internal governance mechanisms

For now, while short-term traders may exploit volatility, long-term investors may prefer to wait for clarity on the outcome of the regulatory review and tangible improvements in the bank’s books.

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