A day after IndusInd Bank revealed a potential 2.35 per cent adverse impact on its net worth after an internal review of its derivative portfolio, the lender’s shares crashed by 27 per cent on the stock exchanges. The stock closed Rs 244 down at Rs 655.95 on the BSE on Tuesday, even as several broking firms downgraded the stock.
The derivative losses will have an approximate impact of Rs 2,100 crore on the bank, the management said during an analysts’ call.
As per the Reserve Bank of India’s (RBI) directives on investments issued in September 2023, banks are prohibited from conducting internal trades/ hedging and, accordingly, IndusInd Bank, too, ceased internal trades from April 1, 2024. However, during an internal review, the bank identified certain discrepancies where accounting of losses on forex derivatives/ swap transactions executed prior to April 2024 (over the past 5-7 years) to hedge forex deposits/ debt were not recognised through net interest income (NII), while the corresponding treasury gains were recognised in the profit and loss (P&L) statement.
“These accumulated losses (pre-tax Rs 2,100 crore and post-tax Rs 1,580 crore) are estimated to have an adverse impact of 2.35 per cent on its net worth as of December 2024. The bank clarified that it will take the hit through P&L which, coupled with accelerated provisions on the MFI portfolio, will push the bank into losses during Q4FY25 and drive down the FY25E RoA (return on assets) by 30 basis points to 0.9 per cent,” Emkay Global Financial Services said in a report.
The bank reported a net profit of Rs 1,401 crore during the December quarter of FY25.
The bank has hired an external agency to review and validate the findings, and had intimated the RBI a week ago about its preliminary findings. Notably, the ex-CFO (who resigned in January 2025) was also aware of this accounting discrepancy.
Derivatives are used by treasury to convert forex deposits/borrowings into the rupee. “Prior to April 2024, both internal and external trades were conducted. Internal trades were being hedged basis swap-cost while external trades were marked-to-market (MTM). If forex borrowings were repaid during the contract, internal trades were unwound triggering differences between swap-cost and MTM which was unaccounted,” the brokerage Prabhudas Lilladher said in a report.
Story continues below this ad
IndusInd Bank has also appointed a reputed external agency to independently review and validate the internal findings. “A final report of the external agency is awaited and basis which the bank will appropriately consider any resultant impact in its financial statements,” it said.
