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Shares of IndusInd Bank Ltd. recorded their worst day ever after the Indian lender said it found discrepancies in its derivatives portfolio and warned of a one-time hit to earnings.
The stock slumped 27% to the lowest since November 2020 in Mumbai, making it the biggest laggard on the benchmark NSE Nifty 50 Index. Analysts at Jefferies Financial Group Inc. and Citigroup Inc. said the mismatch totals about 20 billion rupees ($230 million) of the bank’s pre-tax net income, or 2.35% of its net worth.
“Although the financial implications are negligible, it raises the broader issue of credibility,” M B Mahesh, executive director for research at Kotak Securities Ltd. wrote in a note. “Trust is a crucial part of any investment thesis. It may take some time to rebuild this trust and make the stock investable again.”
The disclosure is the latest blow for the bank controlled by billionaire Hinduja brothers, which has been reeling from concerns about asset quality in its micro-loans book. Separately, the Reserve Bank of India cut short Chief Executive Officer Sumant Kathpalia’s term extension to one year from the three years sought by the lender. The lender’s shares slumped 40% in 2024.
Kathpalia indicated to analysts in a conference call Monday evening that the development likely weighed on the RBI’s decision on his tenure extension. Kathpalia told CNBC-TV18 he expects the lender to report a profit in the fourth quarter.
The derivatives were used to hedge foreign currency deposits and borrowings, Deputy Chief Executive Officer Arun Khurana told analysts Monday. The internal trades, halted since April 2024, were meant to tide over poor liquidity in some longer-tenor derivatives, he said, citing an example of a five-year yen deposit to be swapped to rupees. The trades were based on swap valuations, and not marked-to-market, he said.
“We now do only external trades with external counterparties for hedging our balance sheet foreign currency book,” Khurana said.
READ: IndusInd Bank Sees Rating Downgrades After Profit Warning
The findings emerged during an internal review of the bank’s derivatives book, according to a filing late Monday. IndusInd has hired an external agency, and expects to identify the gaps by early April.