**IndusInd Bank Faces Downgrades Amid Accounting Issues**
IndusInd Bank Ltd has recently come under scrutiny as foreign brokerages CLSA and Investec downgraded their recommendations for the bank’s shares following the revelation of additional accounting discrepancies during internal audits. On Thursday, the bank disclosed that its internal audit department identified ₹674 crore that had been “incorrectly recorded as interest” in its microfinance portfolio over three quarters of the fiscal year 2024-25. This amount was fully reversed as of January 10, according to the bank’s communication to stock exchanges.
The audit also uncovered ₹595 crore in unsubstantiated balances within the bank’s ‘other assets’ account, which were subsequently offset against corresponding balances in the ‘other liabilities’ account in January. This investigation was initiated after a whistleblower complaint raised concerns regarding the bank’s accounting practices.
In response to these developments, CLSA downgraded its recommendation for IndusInd Bank shares from ‘outperform’ to ‘hold’ and reduced its target price from ₹900 to ₹780 per share. Similarly, Investec has downgraded the stock to ‘sell’ with a target price of ₹650. Since March 10, when the bank first reported discrepancies totaling approximately ₹1,530 crore in its derivatives account balances, IndusInd Bank’s shares have plummeted by over 15%. As of Friday, the stock was trading down about 2% at ₹764.30 per share, while the broader Sensex index fell by 0.30%.
The accounting issues have resulted in a significant financial impact, totaling ₹1,960 crore on the bank’s balance sheet for the fiscal year 2024-25. CLSA has also revised its profit outlook for IndusInd Bank for FY25 and FY26, noting that the additional interest income reversal implies a core net interest margin (NIM) that is 17 basis points lower than previously reported. The brokerage has cut its FY25 profit after tax (PAT) estimate by 22% due to this reversal and has adjusted its FY26-27 PAT estimates down by 13%-17% due to NIM compression and reduced growth expectations.
Investec expressed caution regarding the bank’s future performance, highlighting potential structural impairments in core profitability and business growth during this period of heightened uncertainty. Kotak Institutional Equities has also revised its earnings outlook for IndusInd Bank, maintaining a ‘reduce’ recommendation on the stock.
In light of these developments, credit rating agencies have also adjusted their outlook on IndusInd Bank. Crisil has placed the bank’s long-term debt instruments on ‘rating watch with negative implications’, affecting its ₹4,000-crore Tier II Bonds (under Basel III) and ₹1,500-crore instruments.
**FAQ**
**What recent issues has IndusInd Bank faced?**
IndusInd Bank has encountered accounting discrepancies totaling ₹1,960 crore, leading to downgrades from brokerages and credit rating agencies.
