IndusInd Bank stock crashes 27% amid accounting scandal, raising governance concerns
IndusInd Bank stock crashes 27% amid accounting scandal, raising governance concerns
IndusInd Bank, one of India’s leading private lenders, saw its stock plummet by over 27% on Tuesday following revelations of a major accounting discrepancy. The bank’s internal review uncovered an accounting mismatch amounting to ₹1,577 crore (post-tax), equivalent to 2.35% of its net worth as of December 2024. This shocking disclosure sent the stock tumbling to ₹655.95 per share—its lowest point in 52 weeks and the weakest since November 2020.
A Decade of No Returns?
Chartered Accountant and financial planner Nitin Kaushik highlighted the bank’s lackluster performance on social media platform X. He noted that a ₹1,000 investment in IndusInd Bank shares in 2014 would still be worth ₹1,000 in 2025, signaling no growth over the past decade. His analysis pointed to several red flags:
Stock down 27% due to accounting discrepancies
50% of promoter holdings are pledged
CFO resigned, while the CEO received only a one-year extension from RBI instead of the proposed three-year term
Despite trading below book value, governance issues may prevent a rebound
What Led to the Stock Crash?
The stock’s sharp decline followed a 6% drop on Monday, triggered by news that the Reserve Bank of India (RBI) approved only a one-year extension for CEO Sumant Kathpalia, significantly shorter than the three-year term proposed by the board. Adding to investor concerns, the bank’s Q3 earnings revealed a 39% year-on-year drop in net profit and a rise in non-performing assets.
The Forex Derivatives Accounting Misstep
The bank’s current troubles stem from foreign exchange hedging miscalculations spanning five to seven years. In 2023, the RBI introduced new investment portfolio rules for banks, effective April 2024. Previously, banks were able to execute internal swaps between their asset-liability management and treasury desks, booking early termination profits while overlooking losses. IndusInd Bank’s flawed accounting practices resulted in an expected ₹2,100 crore dent in net worth, further eroding investor confidence.
What Lies Ahead?
While the stock showed some recovery on Wednesday, rising 4.43% to close at ₹685 on the NSE, IndusInd Bank remains down nearly 30% year-to-date, with a 56% decline over the past year and a 53% drop in the last six months.
Brokerages remain wary:
Morgan Stanley has flagged potential downside risks.
Macquarie has raised concerns over internal controls.
Kotak Securities has downgraded the stock to ‘reduce,’ warning that it may take several quarters for the bank to rebuild credibility.
With governance concerns mounting and investor confidence shaken, IndusInd Bank faces an uphill battle in restoring market trust and stabilizing its financial standing.
