Bankers fear strain on deposit mobilisation after IndusInd Bank derivative loss

Deposit

Deposit mobilisation, which has been a challenge for the banking sector, is likely to take a hit after IndusInd Bank reported discrepancies in accounting related to forex derivatives that could lead to a one-time hit to earnings.

The IndusInd Bank crisis has sparked fresh concerns in the banking industry, particularly with respect to garnering deposits, senior bankers told Moneycontrol, adding such instances create doubt in the minds of deposits as well as investors.

“As such, there is quite a fight for deposits in the market and with the IndusInd Bank issue playing out, we fear the fight is only going to intensify,” said a senior executive with a private bank.

Another private bank CEO said the IndusInd Bank issue was similar to the way the Yes Bank crisis played out, not in terms of the magnitude but timing.

The bankers spoke to Moneycontrol on condition of anonymity.

For banks, January-March is typically a busy period for deposit mobilisation. "Developments at IndusInd Bank are surfacing just when an all-out war for deposits is being rolled out. This will particularly have an impact in garnering large-sized deposits, mainly those above Rs 3 lakh, from a retail perspective," said another CEO.

The BSE Private Bank Index was down 1.32 percent in the morning trade on March 11, dragged by IndusInd Bank, which was down 22 percent. Smaller names such as City Union Bank, Bandhan Bank and AU Small Finance Bank, too, were down by up to 4 percent.

Deposit growth of the private and state-owned banks has remained in the range of 4-23 percent in the third quarter of the current financial year.

This financial year deposit mobilisation, so far, is better than the previous year, some brokerages have said. Barring the period between September and November 2024, banks struggled with deposits. Consequently, the credit-deposit ratio remains upwards of 80 percent for private banks, with the number touching 100 percent for HDFC Bank in the third quarter. This hasn't gone down well with the regulator and the central bank has been periodically cautioning banks about deposit mobilisation.

Banking deposit numbers for March would be closely tracked following the IndusInd Bank fiasco.

In an exchange filing late on March 10, IndusInd Bank said an internal review of its derivative portfolio uncovered a potential 2.35 percent hit to its net worth, which stood at approximately Rs 62,000 crore as of March 31, 2024.

The review was carried out on RBI’s directions, issued in September 2023, on banks’ investment portfolio.

It noted some discrepancies in these account balances, CEO Sumant Kathpalia said in a late evening conference call but didn’t reveal the process through which these gaps were found.

A final report from an external agency is awaited, based on which it would evaluate the impact on its financials, the bank said.

At 11.49 am, the IndusInd stock was trading at Rs 693.30 on the National Stock Exchange, down 23 percent from the previous close.