IndusInd Bank shares drop as CRISIL assigns 'Watch Negative' on debt instruments

IndusInd Bank's shares fell about 1% in hursday's trade following Crisil Ratings' decision to place its 'Crisil AA+' rating on the bank's long-term debt instruments under ‘Rating watch with Negative Implications’. The short-term rating, however, was reaffirmed at 'Crisil A1+' as per the bank's notification to stock exchanges. This development comes in the aftermath of recent managerial resignations and a review of the bank's microfinance business.

The stock dropped 0.98% to Rs 825 on the BSE, with a significant decline of 23.55% over the past three months. Crisil's rating action follows an internal audit and managerial resignations, which have raised concerns over the bank's microfinance operations. A cumulative adverse accounting impact from derivatives worth Rs 1979 crore was identified, necessitating measures to enhance internal financial controls.

Despite these challenges, Crisil Ratings observed no significant deposit outflow over the past two months, with deposits totalling Rs 4.11 lakh crore as of 31 March 2025. Retail and small business deposits saw a slight decline from Rs 1.89 lakh crore to Rs 1.85 lakh crore during the period, while the bank maintained a liquidity coverage ratio of 136%.

The Reserve Bank of India has sanctioned the formation of a Committee of Executives to oversee IndusInd Bank's operations until a new CEO is appointed. This committee comprises senior bank executives tasked with ensuring continuity in business operations under board oversight amid the current managerial changes.

IndusInd Bank’s microfinance loan book, which represented approximately 9% of its total advances as of 31 December 2024, saw a 16% decline during the first nine months of fiscal 2025. Additionally, gross non-performing assets in the microfinance segment rose to 7.05% by the end of December 2024, raising concerns about elevated credit costs and muted loan book growth.

Recently, two top executives, including CEO Sumant Kathpalia and Deputy CEO Arun Khurana, resigned, taking moral responsibility for discrepancies in derivatives accounting. The bank previously disclosed accounting irregularities involving derivatives, identified as a root cause of notional profits being recorded due to early termination of trades.

The Reserve Bank of India stated that despite the challenges faced, IndusInd Bank remains well-capitalised with a satisfactory financial position. The bank's capital adequacy ratio stood at 16.46%, with a provision coverage ratio of 70.20% as of the end of December 2024. Crisil Ratings will resolve the watch status once there is clarity on measures to address these concerns.

Crisil Ratings will continue to monitor IndusInd Bank's internal financial controls and overall stability, particularly following the managerial changes. The bank is expected to take significant steps to reinforce its financial health and restore stakeholder confidence in the face of these operational challenges.