INDUSINDBK

getting Re-evaluated : 13 March 2025

's Derivatives Loss and Management Credibility Emkay Global said it is finding it embarrassing that IndusInd Bank is in its model portfolio and was a top pick for 2025. The domestic brokerage said it is too late to sell the stock and believes that barring a near-term dead-cat bounce, the stock will mark time until the new CEO is announced. IndusInd Bank has been in the news after the private lender declared a preliminary impact of 2.4% of its net worth due to a change in the valuation of derivatives transactions, leading to a flurry of downgrades on the stock. This came just after the RBI gave a one-year extension to its prevailing CEO, denying him a three-year extension as sought. Emkay's Stance on IndusInd Bank's Stock Emkay Global said stock valuations at 0.8 times estimated FY26 book value have over-discounted the derivatives loss, but that is natural when credibility is an issue. The brokerage said the derivatives loss, though a one-off, is a setback to management credibility, and the transactions should not have been treated as two-legged when one is purely internal. Applying different standards to each leg made it even worse, and the bank was, effectively, overstating NII for an extended period. Despite the management's protestations, Emkay Global said the disclosure could have been made sooner. Unanswered Questions and Potential Challenges Elara Securities earlier noted that the accounting discrepancy leads to uncertainty in the context of lower-than-expected tenure extension of MD & CEO Sumant Kathpalia and the exit of CFO Gobind Jain earlier. The brokerage questioned why this was not highlighted earlier, how such a lapse was possible despite concurrent audits, why the auditors did not share any qualifications, and whether there are any additional challenges. Besides, the brokerage asked how this issue went undetected for more than five years, posing a series of questions on lapses in terms of processes and sanctity of book value.