By Nandan Mandayam and Siddhi Nayak
(Reuters) -Shares of IndusInd Bank recorded their steepest decline ever on Tuesday, eroding about 27% of its market capitalisation, after the private lender reported discrepancies in its derivatives accounting.
The shares, the worst performers on the benchmark Nifty 50 in the last 52 weeks, ended down 27.2% at their lowest since November 2020. The decline wiped out about 190.52 billion rupees ($2.18 billion) in market capitalisation.
IndusInd International Holdings, Mauritius, the promoter of the lender, is ready to infuse liquidity into the bank, if the need arises, its chairman Ashok Hinduja told news channel ETNow. Promoter is an Indian market term for large shareholders.
The Mumbai-based lender is grappling with weak earnings and a shorter-than-requested extension for CEO Sumant Kathpalia, which could prompt uncertainty.
On Monday, the bank flagged a 2.35% hit to its net worth as of December 2024 due to an underestimation of hedging costs with regard to some past forex transactions.
The discrepancies arose from internal trades with low liquidity that were on swap contracts and not marked-to-market, Motilal Oswal Financial Services said in a note, indicating the trades were to do with 3/5-year yen and 8/10-year dollar borrowings.
Until new investment norms kicked in from April 1, 2024, banks’ asset liability management (ALM) and treasury desks could do internal swaps, where typically one cash flow is exchanged for another.
“When currencies became volatile and the dollar strengthened, the treasury department booked these gains,” a senior analyst who claimed to have spoken to the lender, said.
“The bank should have reported the loss that the ALM desk faced due to the swap, but that was not done. Whether that was deliberate or a systemic goof up is yet to be determined,” the person, who did not want to be named as they are not authorised to speak to the media, said.
IndusInd Bank has roped in consulting firm PwC India to conduct a review, a separate source directly aware of the development, said.
Analysts estimate the hit to the bank’s net worth to be around 15 billion rupees to 20 billion rupees.
IndusInd Bank and PwC did not reply to Reuters’ emails seeking comment.
While the discrepancies relate to past years, they reflect “weak internal controls”, Jefferies analyst Prakhar Sharma said.
Sharma expects a one-time hit to the lender’s 2024-25 earnings and says the case could drive some “derating” for the stock.
($1 = 87.2125 Indian rupees)
(Reporting by Nandan Mandayam in Bengaluru and Siddhi Nayak in Mumbai; Additional reporting by Jaspreet Kalra; Editing by Mrigank Dhaniwala and Eileen Soreng)
Disclaimer: This report is auto generated from the Reuters news service. ThePrint holds no responsibility for its content.
