The Reserve Bank of India (RBI) had to step in and ask IndusInd Bank to declare its losses to investors after the private sector lender delayed provisioning by more than a year, Business Standard reported on March 12.
A day earlier, the IndusInd Bank stock crashed over 27 percent after the lender said in an exchange filing that it found some discrepancies in its forex derivative portfolio, which could impact 2.35 percent of its net worth.
On March 12 morning, the scrip was trading at around Rs 676 on the National Stock Exchange, 3 percent higher than the previous close.
When a bank takes a foreign currency exposure, its trading desk needs to hedge it at a cost. This cost is transferred to the asset liability management (ALM) desk. When the foreign currency exposures are repaid, a gain or a loss may be incurred.
IndusInd Bank showed these losses as receivables and included them as intangible assets in its balance sheet, the report said, adding it didn’t make the provisions which were required.
The IndusInd Bank found it difficult to make the provisions as per RBI's “Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023” that came into effect from April 1, 2024, the report said.
The bank hired PwC as an external agency to audit its derivatives portfolio in November. This may have caught the attention of the central bank, the report said, citing industry sources.
When the bank was unable to comply with the norms till February, the RBI stepped up its vigilance. This may have led to the bank making the disclosures on March 10, the report said.
Moneycontrol couldn't verify the report independently.
The bank’s stock declined after brokerages downgraded the scrip as the RBI only extended by a year the tenure of MD & CEO Sumant Kathpalia against the board’s recommendation of three years.
The fall intensified after the bank made the disclosure about the derivate loss.
Also read: IndusInd Bank promoter Ashok Hinduja assures support, 'ready to inject capital' if required
The bank told exchanges that the discrepancy could impact its profit by around Rs 1,500 crore. The final hit may be higher as an external review is still underway, Moneycontrol has reported
Kathpalia said the bank expects to clock a profit in Q4 despite absorbing losses over the derivative discrepancies, which have investor confidence and the stock a boost.
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