MUMBAI: IndusInd Bank may have overstated its net interest income in preceding quarters, research reports by brokerage houses said. As a result, the lender will take a significant hit in its profits for the fourth quarter as it addresses the same.
IndusInd Bank during an analyst call last week said that it identified discrepancies in its foreign exchange derivative portfolio related to transactions conducted over the past 7-8 years. During an internal review of its derivatives trade book in Oct 2024, it discovered issues linked to hedging foreign currency deposits and borrowings from FY24 and earlier.
“The derivatives loss, though a one-off, is a setback to management credibility. The transactions should not have been treated as two-legged, when one is purely internal. Applying different standards to each leg made it even worse and the bank was, effectively, overstating NII (net interest income) for an extended period,” said a research report by Emkay Global.
On Saturday, RBI issued a statement that the bank was stable and depositors should not react to speculation. RBI asked the bank to fix discrepancies in its financials by the end of the quarter ended March 31, 2025, which meant that the PwC which has been appointed to an external assessment has to complete their job in a very short time.
“The promoters and board now have an opportunity to address investor scepticism with a statement hire when choosing Sumant Kathpalia‘s successor,” the report said.
“The financial hit (approx. 2.35% of net worth) will be absorbed as a one-time charge in 4QFY25, routed through the P&L statement. The exact figure may vary slightly, with the final report expected from the external agency appointed by the bank for independent review and validation,” said Motilal Oswal in its report on the bank.
“We believe the board will expedite the process of evaluating both internal and external candidates to hire a suitable successor, which should help alleviate concerns and improve investor confidence,” the Motilal Oswal report said.