IndusInd Bank’s stock faced a significant downturn on March 11, 2025, plunging 20% to a low of Rs 720.35, marking a new 52-week low. The shares hit three consecutive lower circuit limits before 10 AM on the National Stock Exchange. The challenges for IndusInd Bank appear to be mounting, as the bank recently reported a concerning post-tax impact of 2.35% to its net worth due to markdowns on internal derivative trades. This development has prompted leading brokerage firms to downgrade their ratings on the stock and lower their target prices significantly.

Nuvama’s Downgrade to Reduce

Nuvama Institutional Equities has revised its outlook on IndusInd Bank, downgrading the stock from Hold to Reduce. The target price has been slashed from Rs 1,115 to Rs 750, representing a staggering 32% decrease. Analysts at Nuvama pointed out that the bank’s credibility and earnings could be adversely affected, citing “low visibility on succession and earnings, MFI stress, derivatives, and change of guard” as factors for their decision. The CEO has indicated that the board will consider both internal and external candidates for succession planning.

Internal Derivative Trade Issues

The bank clarified that the internal trades involved pertain to 5–7 years ending on March 31, 2024, specifically relating to internal FX derivatives tied to forex borrowings and deposits. To investigate these issues further, IndusInd Bank has engaged an external agency for an audit in Q3FY25. This situation has been compounded by the recent resignation of the CFO and the CEO’s extension for only one year, instead of the typical three-year term.

Motilal Oswal’s Neutral Stance

In a similar vein, Motilal Oswal has downgraded IndusInd Bank to a Neutral rating with a revised target price of Rs 925 per share. Their report noted a downward trend for the stock, exacerbated by deteriorating operating performance and the CEO’s shortened tenure. They also highlighted that the recent accounting discrepancies surrounding derivative transactions are likely to negatively impact the bank’s performance in Q4FY25.

Macquarie Maintains Outperform Rating

Contrarily, Macquarie maintains an Outperform rating on IndusInd Bank with a target price set at Rs 1,210. The brokerage expressed concerns over the bank’s internal processes and compliance, suggesting that this could explain the RBI’s decision to limit the CEO’s tenure to one year. Macquarie noted that such losses might arise when the financial book is inadequately covered and indicated that new accounting regulations from the RBI might not fully account for the discrepancies.

Morgan Stanley Sees Declining Visibility

Morgan Stanley has expressed concerns regarding the visibility of IndusInd Bank, noting several significant leadership changes over the past three months, including the resignation of the CFO and the CEO’s reduced tenure. They anticipate potential risks to future financial performance following the recent disclosure about substantial losses in the derivative portfolio, rating the stock as Equal Weight with a target price of Rs 900.

Prabhudas Lilladher Downgrades to Hold

Lastly, Prabhudas Lilladher has downgraded IndusInd Bank from Buy to Hold, revising the target price down to Rs 1,000 from Rs 1,400. They predict that the ongoing external review will clarify the situation, but preliminary assessments indicate a 2.35% hit to equity. Their projections estimate that the Q4FY25 post-tax profit may suffer a Rs 1,580 crore impact, suggesting a potential 25% reduction in annual profit for FY25.

IndusInd Bank’s current situation underscores the volatility in the banking sector and highlights the need for investors to remain vigilant amid ongoing challenges.