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On March 10, 2025, IndusInd Bank Ltd (Bank) informed stock exchanges that some discrepancies have been identified during the internal review of processes relating to Other Asset and Other Liability accounts of the bank’s derivative portfolio. The review was carried out by the bank post implementation of Reserve Bank of India’s (RBI) Master Direction - Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023, issued in September 2023, which was applicable from April 01, 2024.

Basis the internal review, the bank estimates an adverse impact of ~2.35% on its reported networth of Rs 65,102 crore as on December 31, 2024 (which translates to ~Rs 1,530 crore). This is almost one-third of the net profit of Rs 4,904 crore reported by the bank for the nine months ended December 31, 2024. Given this, Crisil Ratings estimates that the bank’s reported tier I capital adequacy ratio (~15.2% as of December 31, 2024) will be impacted by ~35 basis points. That said, the bank has also, in parallel, appointed an external agency to independently review and validate these internal findings. A final report of the external agency is awaited, following which the impact on its financial statements is expected to become clearer.

Prior to this, on March 7, 2025, the bank announced that the RBI has approved the re-appointment of Mr Sumant Kathpalia as the Managing Director & CEO for one year (as against a three-year extension sought by the bank) with effect from March 24, 2025, till March 23, 2026.

Crisil Ratings understands that the discrepancies in accounting of the bank’s derivatives portfolio are likely to have a one-time impact on its financials. However, at this juncture, the bank's pre-provisioning operating profitability and capital adequacy remain healthy to absorb this impact. Nevertheless, Crisil Ratings believes that the final extent of discrepancies in the bank’s derivative portfolio will be contingent on findings of the external agency. Therefore, Crisil Ratings will continue to monitor the developments closely for impact thereof on the overall credit risk profile of the bank.

As on December 31, 2024, the bank had deposits of Rs 4.09 lakh crore and CASA (current account and saving account) ratio of 35%. While Crisil Ratings understands from the management that there have been no major outflows of deposits so far since the disclosure of the said developments, the same will be closely monitored on an ongoing basis over the near-to-medium term. Furthermore, the liquidity coverage ratio of the bank was adequate at 113% as on March 9, 2025 (as against regulatory requirement of 100%). Since then, the bank has raised ~Rs.11,000 crore of funds through issuance of Certificates of Deposit to support their liquidity profile.

Crisil Ratings also takes note of the statement released by the RBI on March 15, 2025, stating that the bank is well capitalised, and the financial position of the bank remains satisfactory.

Crisil Ratings’ outstanding ratings on the debt instruments of the bank continue to reflect its healthy capitalisation levels with a high core equity ratio and comfortable earnings profile, marked by a healthy pre-provisioning profit. However, these strengths are partially offset by the modest resource profile and higher cost of deposits. Overall asset quality, though adequate at this juncture, remains a key monitorable as there has been some increase in gross non-performing assets in the current fiscal.

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