IndusInd Bank has found itself at a critical crossroads as it confronts a confluence of governance failures, accounting lapses, and strategic uncertainty. The private sector lender reported a loss of Rs 2,328.92 crore for the fiscal fourth quarter and while it did issue a slew of reversals and restatements, it has laid bare deep-rooted structural and cultural issues at the Bank.
IIB has been guilty of betraying stakeholder trust multiple times over the past few years with repeated episodes of misgovernance. HDFC Securities said that the Bank was severely impacted during the IL&FS crises (2018) and the pandemic (2020). “Now, having admitted to multiple accounting lapses over the past couple of months, we believe that IIB is faced with a severe loss of credibility, which will need years and a complete overhaul to rebuild,” it added.
Long grind ahead for IndusInd Bank
Even as the Bank reported a net profit of Rs 2,575.41 crore for the full financial year, the series of missteps have done more damage than expected. A day after the Q4 results release, analysts said the road ahead for IndusInd Bank is likely to be a long and arduous one with top-level executive exits, regulatory scrutiny intensifying, and stakeholder confidence shaken.
According to brokerage firms, the Bank is expected to witness muted loan growth, pressured margins, and lower return ratios in the medium term, underscoring the urgent need for a leadership overhaul, operational reset, and reputational rebuild to restore credibility. Yes Securities, meanwhile, said that delayed results announcement seems to be due to an attempt to come clean.
“Despite the Board’s recent efforts at probing the whistleblower complaints, we believe that IIB deserves to undergo a complete overhaul under greater regulatory scrutiny to regain stakeholder credibility, which is likely to be a long grind. Our forecasts build in single-digit loan CAGR and muted return ratios in the medium-term. We hack our FY26E/FY27E earnings estimates by around 45 per cent each, factoring in a growth slump, drop in yields, and softer fee income trajectory,” HDFC Securities said.
Behavioural turnaround more important than numbers
IndusInd Bank has admitted to multiple accounting lapses, coupled with premature resignations of the top two executives, IIB has lost significant credibility. Sumant Kathpalia, Managing Director and Chief Executive Officer, had resigned from the position on April 29 amid the ongoing controversy. On May 21, the private sector lender said that it is at an advanced stage in the process of identifying potential CEO candidates and will submit its recommendation to the Reserve Bank of India ahead of the June 30 deadline.
Nuvama said that the new CEO will have to tighten internal controls, strengthen governance and likely rebalance the asset mix, implying a sharp slowdown in earnings growth for next two years. “Every other bank that has gone through accounting discrepancies or prior-period adjustments has taken 3-4 years to achieve a new normal. IIB, being a large bank, could take less time, but in our view RoA would remain well below 1 per cent through FY27E. Also, how retail depositors behave in the short term after back-to-back disclosures of prior-period adjustments is unknown. IIB will thus need to maintain high liquidity at least in H1FY26E, impacting NIM in FY26E,” it added.
Q4 results: What was and what could have been?
IndusInd Bank reported a net loss of Rs 2,200 crore in Q4FY25. Adjusting for accounting lapses, InCred Equities said, the bank would report a pre-tax profit of Rs 2,100- 2,400 crore. Adjusting for lapses and reclassification to other income (Rs 760.00 crore), the brokerage firm added, core margin would be closer to 3.5 per cent. Other income declined QoQ as the bank took a Rs 1960.00 crore hit on derivatives accounting lapse. Adjusting for this, other income would be around Rs 2,500 crore.
On Wednesday, IndusInd Bank reported gross NPA additions at Rs 5010.00 crore for Q4FY25, translating to an annualized slippage ratio of 5.5 per cent for the quarter. A majority of the slippages worth Rs 3,509.00 crore emerged from the microfinance book, of which Rs 1,885.00 crore were to an earlier misclassification corrected after review. NIM, meanwhile, was at 2.25 per cent. Excluding one offs, the NIM for the quarter would have been 3.47 per cent, Yes Securities maintained. The high gross slippage on the microfinance portfolio resulted in an interest reversal of Rs 178.00 crore.
“Also, Rs 760.00 crore was reclassified from interest income to other income. The review of the microfinance portfolio also led to interest worth Rs 670 crore being reversed on a gross basis. The normalised NII was Rs 4700 crore as opposed to the reported figure of Rs 3050.00 crore,” the brokerage firm stated. Growth was impacted by the expected degrowth in Microfinance loan book, which was at Rs 30,900 crore.
Furthermore, Nuvama said, “The one-offs were more than previously disclosed and impacted all key sub-heads of the income statement: NII, fees, opex and credit cost. There were one-off NPLs as well.”
Nuvama listed key one-off items as: i) Rs 1,960 crore of derivative loss taken through other income. ii) Rs 680 crore of interest wrongly accrued on MFI reversed through NII. iii) Rs 760 crore of income wrongly classified as NII instead of fees, which has no net impact on P/L. iv) Rs 170 crore of wrongly charged fees on MFI now reversed. v) Rs 1,900 crore of MFI loans—wrongly classified earlier now classified as NPLs and Rs 1,800 crore of provisions on these NPLs made in Q4FY25.
According to management, it added, had it not been for these one-offs, the Bank would have earned PPOP of Rs 3060 core instead of a loss of Rs 500 crore.
The share price of IndusInd Bank plunged 5.7 per cent to a low of Rs 725.80 in Thursday’s trade.