'We exit IndusInd Bank': Why Emkay says no to bank stock despite valuation discount

Emkay Global in an update said it has removed IndusInd Bank from its model portfolio, given the uncertainty over leadership and the fallout of the derivatives accounting issue. 
The domestic brokerage said the prevailing valuations of IndusInd Bank probably over-discounts the negatives but it does not see an imminent recovery. 

"With banks, we believe it is better to enter at a higher valuation when risks are more compressed and sacrifice some upside than go bottom fishing," it said.

As a replacement, the brokerage introduced Power Finance, which it said is attractive at 1 time price to book value and gives it additional exposure to its bullish view on the power sector.

On Thursday, IndusInd Bank shares were trading 0.31 per cent lower at Rs 654 on BSE. PwC is expected to submit a report to the private lender's board detailing the Rs 2,100 crore discrepancy in derivatives accounting on March 28. As per PTI sources, the comprehensive report is expected to outline the actual losses incurred by the bank, identify lapses at various levels, and suggest remedial actions. 

To recall, IndusInd Bank has declared a preliminary impact of 2.4 per cent of its net worth due to a change in the valuation of derivatives transactions. Grant Thornton has been engaged for a forensic audit as Moody's reviews the bank's credit rating. IndusInd Bank is anticipating the submission of a crucial report by PwC that will address a Rs 2,100 crore discrepancy in its derivatives portfolio.

The Reserve Bank has instructed IndusInd Bank's management and board to take necessary corrective measures within the current quarter, which concludes on March 31.

Reuters recently reported that IndusInd Bank has raised Rs 11,000 crore via CDs in a bid to shore up funding position amid deposit withdrawals. IHL, the promoter entity of IndusInd Bank, owned 15 per cent stake in the bank, as of December 31, 2024. A total of 50 per cent of its stake was pledged. It has already received initial approval from the Reserve Bank of India (RBI) to raise its stake in the bank from 15 per cent to 26 per cent. However, it is still awaiting final approval from the regulator.