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Synopsis: IndusInd Bank has recently been under the spotlight due to accounting discrepancies in its derivative portfolio, leading to a 2.35% reduction in its net worth. In response, the bank raised Rs11,000 crore through Certificates of Deposit (CDs) to bolster liquidity. Moody's has placed the bank's credit assessment under review for a potential downgrade, citing concerns over internal controls. Additionally, the bank's promoters have expressed readiness to infuse capital if necessary, and the acquisition of Reliance Capital's insurance units is set to proceed, with plans for public listing in the next two to three years.
Accounting Discrepancies and Financial Impact
IndusInd Bank recently identified accounting discrepancies in its derivative portfolio, resulting in a 2.35% reduction in its net worth as of the December 2024 quarter. This translates to an estimated financial impact of approximately Rs1,600 crore post-tax and about Rs2,100 crore pre-tax.
The Reserve Bank of India (RBI) has initiated a probe into the derivative exposures of various banks, including IndusInd, to assess the effectiveness of their forex hedging strategies.
Fundraising Through Certificates of Deposit
In a bid to strengthen its liquidity position amid these challenges, IndusInd Bank raised Rs11,000 crore through Certificates of Deposit (CDs) on March 11, 2025. The CDs, maturing between three months to one year, were issued at yields ranging from 7.8% to 7.9%, slightly higher than those of its peers.
This successful fundraising indicates investor confidence, bolstered by the RBI's assurance regarding the bank's satisfactory capital levels.
Credit Rating Review
Moody's has placed IndusInd Bank's baseline credit assessment under review for a potential downgrade, citing concerns over internal control deficiencies and the recent accounting discrepancies. The bank's shares have declined by approximately 28% following these developments and the RBI's decision to grant CEO Sumant Kathpalia a shorter-than-requested extension.
Promoter Support and Strategic Moves
Ashok Hinduja, chairman of IndusInd International Holdings Ltd (IIHL), the promoter entity of IndusInd Bank, has reiterated the promoters' willingness to inject capital into the bank if necessary. IIHL currently holds a 15% stake in the bank and has received initial approval from the RBI to increase its stake to 26%, pending final regulatory clearance. Additionally, IIHL plans to list the insurance units of Reliance Capital, which it recently acquired, within the next two to three years.
Analyst Perspectives
Analysts have expressed caution regarding IndusInd Bank's stock, noting that while valuations appear attractive, the uncertainties stemming from the accounting discrepancies warrant a prudent approach. Some have advised investors to monitor the situation closely before making long-term investment decisions.
Disclaimer: This article is based on publicly available information and is intended for informational purposes only. It does not constitute financial advice.
Keywords: IndusInd Bank, accounting discrepancies, Certificates of Deposit, Moody's review, promoter support, Reliance Capital acquisition, RBI probe, liquidity measures, credit rating, investor confidence.
