In a surprising turn of events, prominent mutual funds in India divested a staggering ₹1,600 crore worth of shares in IndusInd Bank during February 2025, just days before the bank revealed a significant accounting issue. This mass sell-off led to a historic plunge in the bank’s stock, marking the largest single-day decline it has ever experienced.

Mutual Funds Pull Back from IndusInd Bank

February was a challenging month for IndusInd Bank, as several leading mutual funds opted to cut their stakes. Among the stocks listed in the Nifty 50, IndusInd Bank faced the steepest drop in mutual fund ownership.

• 7.4% decline in mutual fund holdings, totaling ₹20,020 crore.
• The number of shares held by these funds decreased by 7.3%, equating to 20.22 crore shares by month-end.

According to analysis from Motilal Oswal Financial Services, this significant reduction underscores a broader trend among asset management companies.

Noteworthy Transactions Among Funds

In February, notable mutual funds that reduced their exposure included:

• Kotak Mutual Fund: Sold shares worth ₹510 crore.
• Motilal Oswal Mutual Fund: Offloaded shares valued at ₹126 crore.

Interestingly, while many funds were selling, Quant Mutual Fund took a different approach, increasing its investment in IndusInd Bank by purchasing shares worth ₹305 crore.

Accounting Issues and Market Response

On March 10, IndusInd Bank disclosed an accounting discrepancy related to derivative transactions prior to April 1, 2025. The financial impact of this discrepancy is estimated to be around 2.35% of the bank’s net worth, amounting to approximately ₹1,577 crore. The subsequent market reaction was swift and severe; on March 11, the bank’s stock price plummeted by 27%, leading to a staggering market capitalization loss of nearly ₹20,000 crore.

IndusInd Bank’s CEO, Sumant Kathpalia, indicated that this issue was detected between September and October of the previous year. The bank has been in communication with the Reserve Bank of India (RBI) and anticipates a thorough impact assessment to be completed by early April.

RBI’s Response and Market Recovery

Despite the dramatic fall in share prices, there has been a glimmer of hope for IndusInd Bank. The RBI has assured stakeholders of the bank’s stability, affirming that it remains “well-capitalized” and in a “satisfactory” financial position.

In a statement released on March 15, the RBI emphasized:

“The Reserve Bank would like to state that the bank is well-capitalized and the financial position of the bank remains satisfactory.”

As a result of this reassurance, IndusInd Bank’s shares began to show signs of recovery, trading slightly higher at ₹678.25 on the BSE around 1:05 PM.

Conclusion

The events surrounding IndusInd Bank in February 2025 illustrate the volatile nature of the market and the critical role that transparency plays in investor confidence. With the RBI’s backing, the bank may navigate these turbulent waters and restore trust among its shareholders and customers.