IndusInd Bank's March quarter results have prompted a chorus of concern from analysts, with multiple brokerages slashing their earnings estimates and downgrading the stock, as the full extent of various accounting lapses and internal frauds come to light.
The bank reported a loss-before-tax of around Rs 30,000 crore, driven by reversals and provisions from a series of discrepancies across its microfinance portfolio and derivative transactions.
What began as an overstatement in derivatives income two months ago has now spiralled into a broader governance crisis, wiping out investor confidence.
Analysts at IIFL Capital, Nuvama, and HSBC have all reduced the stock to a ‘Reduce’ rating, citing eroded profitability visibility and an uncertain path to one percent return on assets.
UBS, ICICI Securities, and Investec maintained a bearish view, pointing to the long way ahead before any credible recovery can take place. HSBC, went to extend of saying that IndusInd Bank has effectively been pushed back to a ‘pre-2009 era’, questioning whether the bank has the governance depth to steer through this phase.
Macquarie, however, is one of the few dissenting voices that has given an ‘Outperform’ rating, arguing that the bank now trades at a steep discount compared to peers. On a trailing basis, IndusInd trades at just 5 times its annualised pre-provisioning operating profit and 0.9 times FY25 price-to-book, compared to 15x and 2-2.5x respectively for top-tier private sector peers. Yet, even Macquarie admits the clean-up’s completeness is still in question and clarity on management succession, peaking credit costs, and NIM sustainability are important metrics to watch before any re-rating.
IIFL Capital has downgraded the stock to ‘Reduce’ from ‘Add’, highlighting that the road to achieving even a one percent return on assets has become a ‘distant reality’. The brokerage pegged the total P&L impact of all frauds and misclassifications at Rs 4,700 crore, or 7 percent of the bank’s net worth at the end of Q3FY25.
Equirus echoed a similar sentiment, stating that while the bank claims to have cleaned up its books, the discovery of fresh irregularities, such as misrecognised fee income just a day before the results, raises doubts over whether all skeletons have truly emerged from the closet.
IndusInd’s management, during the analyst call on May 21, has said that all known issues have now been accounted for, and a stricter compliance and governance culture is being instilled. The board has also initiated steps to hire a new CEO following the resignation of its top leadership, with a shortlist expected to be submitted to the RBI by June 30.
The analysts’ forward guidance on the bank also does not kindle much optimism.
Brokerages like Equirus and Nuvama expect return on assets to remain well below one percent through FY27, with loan growth likely to stay muted.
Equirus said the fee income for IndusInd is expected to remain weak, while the elevated cost of new funds, given the dilution in deposit franchise, will continue to drag net interest margins.
Jefferies, while maintaining a ‘Buy’ rating, said the clean-up was larger than anticipated and acknowledged that the exit run-rate of business is now at a low base.
“The new CEO will have to lay a fresh path forward,” the note said, hinting that only a structural shift in leadership and strategy can put IndusInd on a more stable footing.
While IndusInd Bank has said that all known discrepancies have now been accounted for, and auditors have combed through its financials extensively, analysts and the market remain wary.
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