Macquarie retains ‘Outperform’ on IndusInd Bank despite derivative discrepancies; target at ₹1,210

The accounting discrepancies in IndusInd Bank’s derivative book, which had sparked concern among investors, may have a more limited impact than initially feared. According to Macquarie Research, the extent of the discrepancy has now been quantified by an external agency at 2.27 percent of the bank’s net worth, offering some near-term relief for stakeholders.

The brokerage has retained its 'outperform' call on the private sector lender with a target price of ₹1,210, implying an upside potential of 53.5 percent from previous close.

Derivative Issues Quantified, Says Macquarie

Macquarie Research noted that IndusInd Bank recently disclosed findings from an external agency appointed to assess irregularities in its derivative book. The agency pegged the financial impact at ₹1520 crore, or 2.27 percent of the bank’s net worth as of Q3FY25. This is slightly lower than the ₹1580 crore, or 2.35 percent, estimated earlier in the bank’s internal review. Macquarie considered this as incrementally positive, as it signals that the discrepancy impact remains within previously guided levels and does not pose additional immediate financial risk.

Forensic Audit and Management Succession in Focus

Going forward, Macquarie said attention will now turn to the upcoming forensic audit report being conducted by another external agency. This second review aims to identify the root cause and assess the accounting treatment of the derivative discrepancies. In parallel, Macquarie highlighted that the spotlight will increasingly fall on management succession planning. Despite IndusInd Bank trading at an attractive 0.6x FY27E Price-to-Book ratio, uncertainties surrounding leadership transition, peak credit costs, and margin sustainability remain important factors to monitor.

Mixed Pre-quarter Trends in Core Business

IndusInd Bank’s pre-quarter data for Q4FY25, as compiled by Macquarie Research, reveals modest sequential growth in deposits but a decline in advances. Aggregate advances stood at ₹3,479 billion in Q4FY25, down 5.2 percent quarter-on-quarter (QoQ), although this marks a 1.4 percent year-on-year (YoY) increase. Meanwhile, aggregate deposits inched up 0.4 percent QoQ and 6.8 percent YoY to ₹4,111 billion.

Retail deposits and deposits from small business customers were marginally lower at ₹1,852 billion, compared to ₹1,887 billion in the previous quarter, reflecting a 1.9 percent decline QoQ. Retail deposits formed 45.0 percent of total deposits, slightly lower than 46.1 percent in Q3FY25 but up 100 basis points YoY.

Bulk deposits showed an uptick both sequentially and annually. Bulk deposits rose 2.3 percent QoQ and 4.9 percent YoY to ₹2,260 billion. On the other hand, CASA (Current Account Savings Account) deposits fell to ₹1,349 billion, down 5.7 percent QoQ and 7.5 percent YoY. The CASA ratio declined by 210 basis points QoQ to 32.8 percent, with a steeper fall of 510 basis points on a YoY basis.

Term deposits, however, saw a strong 6.3 percent QoQ and 15.6 percent YoY growth, reaching ₹2,762 billion. The bank’s loan-to-deposit ratio (LDR) decreased to 84.6 percent in Q4FY25 from 89.6 percent in Q3FY25, indicating a decline of 496 basis points QoQ and 459 basis points YoY.

Stock Price Trend

After declining over 34 percent in March, the private sector lender recovered, gaining almost 22 percent in April so far. Meanwhile, in the last 1 year, the stock has lost over 47 percent of its investor wealth.

Currently, the stock is 49 percent away from its 52-week high of ₹1,550.00, hit in June 2024. Meanwhile, it recorded its 52-week low of ₹605.40 in the previous month.

While concerns over derivative discrepancies at IndusInd Bank remain in the spotlight, Macquarie’s analysis suggests the immediate financial impact is contained and broadly in line with earlier estimates. However, as the market awaits the findings of the forensic audit and clarity on succession planning, sentiment around the stock may remain subdued. Valuations remain attractive, but investors are likely to remain watchful of further developments on governance and operational fronts.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.