India’s IndusInd Bank slumps over 22% as accounting gap raises earnings concerns

By Nandan Mandayam and Siddhi Nayak

(Reuters) -Shares of Indian private lender IndusInd Bank fell more than 22% to an over four-year low on Tuesday, a day after it reported discrepancies in accounting related to forex derivatives that could lead to a one-time hit to earnings.

The shares, the worst performers on the benchmark Nifty 50 in the last 52 weeks, were set for their steepest single-session fall since March 2020.

On Monday, IndusInd Bank flagged a 2.35% hit to its net worth as of December 2024 due to an underestimation of hedging costs with regard to some past forex transactions, without sharing more details.

Analysts estimate the hit on net worth to be around 15 billion rupees to 20 billion rupees ($171 million to $229 million).

Net worth, an indicator of a company's overall financial health, is the value of assets minus the liabilities.

The discrepancies in the derivatives book were identified by the September-to-October period, the bank's CEO Sumant Kathpalia said in a late evening conference call, after new rules on banks' investment portfolios kicked in from April 2024.

While the reported gap was specific to certain types of transactions and relates to past years, "it clearly reflects weak internal controls", Jefferies analyst Prakhar Sharma said.

Sharma expects a one-time hit to the lender's 2024-25 earnings and says the case could drive some "derating" for the stock.

Four out of the 38 analysts tracking IndusInd Bank have a "sell" rating, the most in at least two years, as per data compiled by LSEG. On average, the analysts have a "buy" rating.

The Mumbai-based bank has been grappling with weak earnings and a shorter-than-requested extension for CEO Kathpalia which could prompt uncertainty.

"A negative derivatives' disclosure has the potential to unnerve investors more than a back-dated non-performing loan disclosure," analysts at Nuvama said in a note, downgrading the stock to "reduce".

IndusInd's shares have fallen 46% since an earnings miss in late October. The Nifty 50 is down 8% over the same period while the banks' index has fallen 7%.

($1 = 87.3125 Indian rupees)

(Reporting by Nandan Mandayam in Bengaluru and Siddhi Nayak in Mumbai; Additional reporting by Jaspreet Kalra; Editing by Mrigank Dhaniwala)