IndusInd Bank reports mixed Q4 results amid derivative accounting lapse

IndusInd Bank's January-March quarter update highlighted a 5.2% drop in loan growth and flat deposit expansion compared to the previous quarter. These developments come amid an ongoing investigation into a $175 million discrepancy in the bank’s derivatives portfolio, which raised significant concerns over governance practices.

This discrepancy prompted the bank to enlist Grant Thornton for a comprehensive forensic review. IndusInd is India's fifth-largest private sector bank, and this recent accounting issue has resulted in a 25% decline in the bank’s share price since the disclosure. 

On an annual basis, the bank's loans grew by a modest 1.4%, while deposits increased by 6.8%. Despite these gains, the bank's shares continue to reflect market apprehension, spurred by the recent financial irregularities. In a bid to reinforce its financial base, IndusInd Bank secured $2 billion in high-cost bulk deposits in March, marking its most substantial monthly increase in over two years. The bank's CASA ratio, a measure of low-cost current and savings account deposits, which indicates operational efficiency, fell to 32.8% from 34.9% in the prior quarter and 37.9% a year ago. 

The liquidity coverage ratio, reflecting the bank's ability to meet short-term obligations with highly liquid assets, stood at 118.4% for the quarter. Retail deposits, alongside those from small business customers, decreased slightly to Rs 1.85 lakh crore as of 31 March 2025, down from Rs 1.88 lakh crore at the close of the previous quarter. IndusInd Bank's mixed financial performance highlights the dual challenges of maintaining growth while addressing governance and financial reporting issues. 

In the business update for Q4 FY25, IndusInd Bank showcased a varied performance. Net advances increased by 1.4% year-on-year but declined by 5.2% quarter-on-quarter to Rs 3.47 lakh crore. Total deposits rose by 6.8% year-on-year and 0.4% quarter-on-quarter, reaching Rs 4.11 lakh crore. The bank’s corporate banking sector experienced a contraction with a 4.9% year-on-year and 15.1% quarter-on-quarter decline. In contrast, the consumer banking sector exhibited growth, with a 6.3% year-on-year and 3.4% quarter-on-quarter increase, underscoring a shift in focus towards retail banking. 

The decline in the CASA ratio suggests increasing cost pressures and a reliance on more expensive funding sources, which may affect future profitability. The retail deposits and deposits from small business customers reflect a slight downturn, indicating cautious consumer sentiment. As the bank navigates through this period of uncertainty, its strategic focus will be crucial. Competitors like HDFC Bank and ICICI Bank remain strong in the market with significant growth strategies. Analysts are closely watching IndusInd's steps to assure stakeholders of robust governance and financial transparency moving forward. 

What are brokerages saying

On Friday, the global brokerage firm UBS reiterated its bearish stance on IndusInd by maintaining a 'Sell' rating and significantly reducing the stock's price target by 22% to Rs 600 from the previous target of Rs 770.

UBS has identified various risk factors that could result in a further downgrade of IndusInd Bank. The brokerage is particularly concerned about deposit flows, which it believes could have a significant impact on the bank's financial stability. The appointment of a new Chief Executive Officer (CEO) is also seen as a potential risk factor by UBS. Moreover, the brokerage emphasized the importance of the findings from an external auditor's report as crucial indicators for the bank's future performance.

Elara Securities noted in a report about IndusInd Bank that they anticipate a challenging quarter for the bank in Q4, with pressure expected across various areas. They predict that weaknesses may be reflected in asset quality, particularly in the MFI portfolio.

The brokerage firm also mentioned that they believe the recent issues related to derivative accounting and management changes, coupled with a decline in NIMs, will impact NII growth and overall business momentum. Elara Securities expects discussions during the quarter to focus on the final impact of audits, growth prospects, deposit growth, and the normalization of credit costs for IndusInd Bank.

Furthermore, Elara Securities forecasts a loss of Rs 759.40 crore for IndusInd Bank in Q4, with credit costs expected to rise by 319 basis points to 4.7 percent.

IndusInd Bank shares closed at Rs 682.25, down by -3.83%, on Friday.