The recent plunge in IndusInd Bank’s share price has sent shockwaves through the financial sector, severely impacting the holdings of major investors, including India’s largest life insurer, Life Insurance Corporation (LIC). On March 11, the bank’s stock plummeted by 27%, reaching its lowest mark since November 2020. This alarming decline was triggered by the revelation of accounting discrepancies within its derivatives portfolio, which are anticipated to have a significant one-time effect on the bank’s earnings.

What Led to the IndusInd Bank Stock Decline?

The downfall of IndusInd Bank’s shares can be traced back to an internal audit examining its asset and liability accounts. This review was initiated in light of new regulations set to take effect on April 1, 2024, as mandated by the Reserve Bank of India (RBI). During this evaluation, the bank uncovered discrepancies that could erode approximately 2.35% of its net worth.

• Estimated Impact: The financial fallout from these discrepancies is projected to be between ₹2,000 crore and ₹2,100 crore after taxes.
• Quarterly Implications: This is expected to adversely affect the bank’s profit and loss statement in Q4 FY25, with analysts predicting a potential loss for that quarter.

Over the past year, IndusInd Bank has struggled significantly, with its stock value dropping by more than 55%, making it one of the poorest performers on the Nifty 50 index. In addition to the current crisis, the bank is facing various operational challenges and uncertainties surrounding its management structure, as its managing director was granted only a one-year term, rather than the customary three years.

Analyst Reactions and Ratings

The compounded issues have led numerous brokerages to reassess their outlook on IndusInd Bank, resulting in lowered target prices and increased "sell" ratings. A recent report from Reuters revealed that four out of 38 analysts now advise selling the stock, marking the highest number of sell recommendations in two years, despite a general average rating of "buy."

LIC’s Significant Losses Amidst the Turmoil

The turmoil in the banking sector has not spared LIC, which holds a 5.23% stake in IndusInd Bank. As the stock reached its five-year low, LIC witnessed a staggering loss of approximately ₹923.24 crore. This drop diminished the value of its stake from ₹3,398.61 crore at the close of the previous day to ₹2,475.33 crore.

• Current Stock Price: As of the latest trading session, IndusInd Bank’s shares were valued at ₹655.95.

In addition to LIC, several mutual funds, such as Kotak Mutual Fund, ICICI Prudential, UTI Mutual Fund, and Franklin India, also hold stakes in this Nifty 50 company, amplifying the ripple effects of the stock’s decline across the investment landscape.

Conclusion

The ongoing situation with IndusInd Bank serves as a stark reminder of the volatility in the financial markets. Investors and analysts alike will be watching closely as the bank navigates these challenges, particularly with the impending regulatory changes and the potential long-term impacts on its profitability. As the market adjusts, only time will tell how this private sector lender will recover from its recent setbacks.