Investors have been on edge regarding the accounting irregularities in IndusInd Bank’s derivative portfolio, but new insights suggest the fallout may not be as severe as initially anticipated. A recent analysis from Macquarie Research reveals that the discrepancies represent only 2.27% of the bank’s net worth, providing a sigh of relief for stakeholders. The brokerage has maintained its ‘outperform’ rating on the bank, setting a target price of ₹1,210, which indicates a potential upside of 53.5% from its last closing price.

Understanding the Discrepancies

Macquarie’s report highlighted the findings from an external agency that evaluated the discrepancies in IndusInd Bank’s derivative book. They estimated the financial impact at ₹1,520 crore, slightly less than the previous internal estimate of ₹1,580 crore. This moderation in expected losses is considered a positive development, suggesting that the discrepancies remain manageable and do not pose any immediate risk to financial stability.

Forensic Audit and Leadership Changes

Looking ahead, the focus is now shifting to an impending forensic audit conducted by another external firm. This audit’s purpose is to uncover the underlying causes of the accounting issues and to evaluate how the discrepancies were treated. Alongside this, Macquarie emphasized the importance of management succession planning, as uncertainties regarding leadership could significantly influence the bank’s future performance. While IndusInd Bank’s Price-to-Book ratio is appealing at 0.6x FY27E, factors such as credit cost peaks and margin sustainability will require careful observation.

Core Business Trends: A Mixed Bag

Recent pre-quarter data for Q4FY25, compiled by Macquarie, indicates some mixed trends in the bank’s core operations. While deposits have seen a modest 0.4% increase quarter-on-quarter, advances have declined by 5.2% QoQ. The total advances reached ₹3,479 billion, reflecting a year-on-year growth of 1.4%. Conversely, total deposits rose to ₹4,111 billion, marking a 6.8% increase year-on-year.

• Retail deposits: Decreased slightly from ₹1,887 billion to ₹1,852 billion, a 1.9% drop QoQ.
• Bulk deposits: Increased by 2.3% QoQ and 4.9% YoY to ₹2,260 billion.
• CASA deposits: Fell to ₹1,349 billion, down 5.7% QoQ.

Interestingly, term deposits demonstrated robust growth, surging by 6.3% QoQ and 15.6% YoY, reaching ₹2,762 billion. The bank’s loan-to-deposit ratio (LDR) has declined to 84.6%, down from 89.6% in the previous quarter.

Stock Performance Overview

Despite a sharp decline of over 34% in March, IndusInd Bank’s stock has rebounded, gaining nearly 22% in April. However, over the past year, it has lost more than 47% of its value. Currently, the stock is trading 49% below its 52-week high of ₹1,550, achieved in June 2024, and recently hit a low of ₹605.40.

Although the accounting discrepancies continue to draw attention, Macquarie’s findings indicate that the immediate financial implications are manageable and consistent with previous forecasts. As the market anticipates the forensic audit results and clarity on leadership transitions, investor sentiment may remain cautious. While valuations appear attractive, ongoing developments in governance and operations will be crucial for future investment decisions.