Fraud-hit IndusInd Bank reports worst-ever show in Q4 with Rs 2,329 Crores loss, promises no more setbacks ahead.

Fraud-hit IndusInd Bank on Wednesday has reported a Rs 2,329 Crore loss for the March quarter, its worst performance ever, as the interim management opted to go for a deep-clean exercise beyond recognising the impact of wrong accounting practices. The bottom-line nosedived to Rs. 5,014 crores, largely due to the microfinance book, where a Rs. 1,800-crore incorrectly classified accounting was unearthed and reported as a gross non-performing asset, and also some misappropriations in the two-wheeler segment.

The Banks financial debacles were made public on March 10^th. When it was disclosed, that an incorrect

recognition of derivative trades over the last two years is the potential cause for the abrogation of the net worth. As reiterated by the bank – the last two months have been tumultuous for the Hinduja’s-promoted lender, and have also witnessed the immediate resignation of chief executive Sumant Kathpalia and his deputy Arun Khurana amid allegations of insider trading as well.

In the March quarter, the bank took impact of all the irregularities brought to the notice, including a Rs. 1,960 crores loss from incorrect recognition of derivative trades, cumulative interest income reversal of Rs. 674 crores due to incorrect accounting, disclosed a Rs. 172 crore frauds, where employees had led it to incorrectly classify the amount as fee income under the microfinance business, set off Rs. 595 crores of incorrect manual entries posted as “Other Assets” and “Other Liabilities” in the past, and also recognised the higher downfall.

The management, now led by veteran banker Sunil Mehta in a non-executive role, affirmed that all the shortcomings have been taken on board and sought to assure that there will not be any trouble in the future as it goes about “reinvigorating” the bank. Mehta said, “based on the reviews that have been done, all the issues have been duly identified, addressed and disclosed to all the stakeholders. … the financial impact of all the issues that we have declared has already been undertaken in financial year 2024-25. Furthermore, he said that it is “unfortunate and painful” to see the lapses in governance, and affirmed the boards strive in addressing all the governance-related discrepancies. The board was not informed about the lapses in the past, he said.

The process for identifying Kathpalia’s successor is in advanced stages, Mehta said, adding that the board is on the lookout for a leader with a strong ethical foundation. Accountability for all the lapses will be fixed even as the bank goes through the process of getting back to business as usual, he said, adding that central government has been informed about the shortcomings. The bank management insisted that adjusted for the one-time hits that it had to take, IndusInd Bank franchise is strong and it performs well on other parameters.

The bank has also witnessed a huge jump in write-offs at Rs 1,816 crore as against Rs 984 crore in the quarter-ago period. The overall gross non-performing assets ratio shot up to 3.13% as of March 31, as against 2.25% in the quarter-ago period and 1.92% in March 2024. The overall provisions more than doubled to Rs. 2,522 crores from Rs. 950 crores in the year-ago period.

On the microfinance front, the management said downfalls would further elevate in FY26 as well but will move towards stabilisation from the second half onwards. Already, there have been reports of a bettering in collection efficiencies and the crisis in Karnataka is also ebbing, they said. The core net interest income declined 43% on-year to Rs. 3,048 crores on the back of a 2 percentage point narrowing in the net interest margin at 2.25% and a 1% growth in advances.

The corporate loan book declined 16% on-quarter to Rs. 1.43 lakh crore, and the management explained the same as a tactical call for maintaining liquidity buffers. The other income declined by 72% on year to Rs. 709 crores during the January-March period.

The ailing bank will now focus on secured consumer and small business loans, and will take a measured stance on the corporate loans, the management said. Contrary to fears, deposits have been stable on-quarter though the share of the low-cost current and savings accounts declined during the quarter to 33%. The bank has been able to maintain its liquidity buffers, with the liquidity coverage ratio being around 139% till Tuesday, the management said.

For 2024-25, IndusInd Bank reported over 71% drop in net profit to Rs. 2,576 crores against Rs. 8,977 crore in FY24. The bank’s net Interest Income for FY 25 was at Rs. 19,031 crores against Rs. 20,616 crore in FY24.

Meanwhile, provisioning during FY’25 rose to Rs. 7,136 crores, from Rs. 3,885 crores in FY’24. The bank’s overall capital adequacy stood at 16.24% with the core buffer at a comfortable 15.10%, which led the management to insist that it has the resources to grow.

In a most surprising public statement, IndusInd Bank board has suspected involvement of certain employees in the derivatives, microfinance and balance sheet “fraud” and directed the bank to report the matter to investigative agencies and regulatory authorities. The statement came, when the bank board met on Wednesday to approve the financial results for the March quarter and for 2024-25 fiscal.

In a regulatory filing, IndusInd Bank said based on review of internal audit reports as well as external professional firm, its board “suspects the occurrence of fraud against the Bank” and the involvement therein of certain employees having a significant role in the accounting and financial reporting of the Bank. “Accordingly, the Board has directed necessary steps be taken under applicable law (including reporting to regulatory authorities and investigative agencies) and to also fix accountability of all persons responsible for these lapses“, it said.

Team Maverick