IndusInd Bank shares sink 3% after CEO Sumant Kathpalia resigns, Emkay downgrades to 'reduce'

IndusInd Bank CEO Sumant Kathpalia's resignation comes a day after deputy CEO Arun Khurana's resignation.

Private lender IndusInd Bank's shares sank three in early trade on Wednesday, April 30, after the CEO and Managing Director  tendered his resignation amid the ongoing concerns regarding the discrepancies in the bank's derivatives portfolio.

In his resignation letter, Kathpalia wrote, "I undertake moral responsibility, given the various acts of commission/omission that have been brought to my notice. I would request that my resignation be taken on record at close of working hours today."

This comes after RBI granted only a one-year extension to Kathpalia's tenure as IndusInd Bank's CEO, despite the lender asking for a three-year term.

At 9.20 am, the bank's shares were quoting Rs 816.90, down 2.4 percent on the NSE.

On April 28, the bank's Deputy CEO Arun Khurana resigned from his position. "Considering the recent unfortunate developments, wherein the Bank determined an adverse accounting impact on P&L, on account of incorrect accounting for internal derivative trades, I having oversight of the Treasury Front office function, as the Whole Time Director, Deputy CEO and a part of Senior Management of the bank, hereby resign, effective immediately," said Khurana.

On Sunday, April 26, 2025, IndusInd Bank's board of directors announced that they are taking 'necessary steps' to fix accountability of the persons responsible for the accounting lapses and realign roles and responsibilities of senior management.

Earlier, IndusInd Bank said that accounting lapses in the derivative portfolio will have a negative impact of Rs 1,979 crore on the bank’s networth. The bank has assessed an adverse impact (on a post-tax basis) of 2.27 per cent to its net worth as of December 2024 on account of discrepancies relating to derivative deals.

The private sector lender last month reported the accounting lapses in the derivative portfolio estimated to have an adverse impact of approximately 2.35 per cent of the bank’s net worth as of December 2024.

In a note, domestic brokerage Emkay Global downgraded its rating on IndusInd Bank to 'reduce', from 'add' earlier.

"This is in view of the spate of top management resignations, including the MD & CEO, which should increase business/margin disruption including risk of another round of deposit run-down, impact on asset quality, middle-management attrition, and possibility of appointment of an RBI nominee on the Board as well as a PSU banker as MD & CEO, similar to Bandhan Bank or RBL Bank).

The stock had recently pulled back, given that the assurance by the incumbent MD & CEO's on smooth management transition and no more skeletons in the cupboard seems to be challenged now, believed the brokerage.

"We understand that the Board has begun the CEO/ED hiring process, which may though take at least three to six months to seek RBI approval; thus, business would be hit in the interim and the recovery process prolonged, thereby making the risk-reward unattractive for IIB at current levels vs some peers," added Emkay.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.