IndusInd Bank share price falls over 3% after CEO Sumant Kathpalia resigns

IndusInd Bank share price fell over 3% on Wednesday, April 30, after the private lender’s MD & CEO Sumant Kathpalia resigned from his post. IndusInd Bank shares fell as much as 3.21% to ₹810.40 apiece on the BSE.

Private lender IndusInd Bank on Tuesday announced that Sumant Kathpalia has stepped down as the managing director and chief executive officer (CEO) of the bank with immediate effect amid ongoing investigations into discrepancies in the accounting of its derivatives portfolio.

“I wish to submit my resignation from the services of the Bank in relation to the ongoing Derivatives discussion. I undertake moral responsibility, given the various acts of commission/ omission that have been brought to my notice,” Kathpalia wrote in his resignation letter.

RBI had earlier granted only a one-year extension to Kathpalia’s tenure as IndusInd Bank’s CEO. The lender had sought a three-year term.

On April 28, IndusInd Bank’s Deputy CEO Arun Khurana had resigned from his position.

RBI nod for Committee of Executives

Meanwhile, IndusInd Bank also announced that it has received approval from the Reserve Bank of India (RBI) to constitute a “Committee of Executives”, which will discharge the duties, roles and responsibilities of the CEO of the bank for an interim period until a permanent CEO is appointed.

“Based on the RBI Approval, the Board has constituted such “Committee of Executives” to oversee the operations of the Bank, under the oversight and guidance of the Oversight Committee of the Board till a new MD&CEO of the Bank assumes charge or a period of 3 months from the date of relieving the incumbent MD&CEO, whichever is earlier,” IndusInd Bank said in a regulatory filing on April 30.

Emkay Downgrades IndusInd Bank shares, cuts target

Brokerage firm Emkay Global Financial Services downgraded its ratings on IndusInd Bank as it believes the spate of resignations, including the CEO's, increases the risk of another round of business disruption and may thus prolong the recovery process.

Emkay Global downgraded IndusInd Bank shares to ‘Reduce’ from ‘Add’ and also cut IndusInd Bank share price target by 9.4% to ₹725 apiece from ₹800 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),” said Anand Dama, Senior Research Analyst at Emkay Global Financial Services Ltd.

IndusInd Bank share price had recently pulled back, given that the assurance by the incumbent MD & CEO — on smooth management transition and no more skeletons in the cupboard (recent MFI concerns being looked into raise new risk) — seems to be challenged now.

“We understand that the Board has begun the CEO/ED hiring process, which may take at least 3-6 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 IndusInd Bank at current levels versus some peers,” Dama said.

IndusInd Bank Share Price Outlook

Vishnu Kant Upadhyay, AVP - Research & Advisory, Master Capital Services noted that the leadership transitions at the top, especially amid significant financial setbacks, tend to increase uncertainty regarding strategic continuity and governance.

“Although, these financial & leadership headwinds have already been discounted in IndusInd Bank share price, hence, no major sell-off is likely to take place in the long term. But still, long-term investors may watch for clarity on succession planning and stabilisation efforts,” said Upadhyay.

On the technical charts, Upadhyay said that if IndusInd Bank share breaches key support zones around ₹770, it could invite further downside toward ₹712 and then ₹640 levels.

“On the higher side, ₹920 - 940 will continue to act as an immediate resistance,” he added.

IndusInd Bank share price has gained 28% in one month, but the banking stock has declined 14% on a year-to-date (YTD) basis. IndusInd Bank shares have plunged 45% in one year, while the stock is down 15% in three years.

At 9:30 AM, IndusInd Bank share price was trading 2.74% lower at ₹814.35 apiece on the BSE.

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