Analyst Concall
To start FY26 on a clean slate, says IndusInd Bank chairman
This story was originally published at 22:38 IST on 21 May 2025
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--IndusInd Bank: Board not informed of disprecencies at time of occurance
--IndusInd Bank: Board, mgmt working on irregularities brought to our notice
--IndusInd Bank: Acknowledge recent developments unfortunate
--IndusInd Bank: Board determined to address all issues
--IndusInd Bank on derivative issue: Took serious view of staff accountability
--IndusInd Bank on derivative acct issue: Discountinued internal accting trade
--IndusInd Bank: Will start FY26 on a clean slate
--IndusInd Bank: Slippages elevated on misclassification of certain accounts
--IndusInd Bank: Growth in corporate book to start reflecting in coming qtrs
--IndusInd Bank: Continue to focus on home loans
--IndusInd Bank: Continue to scale retail secured mix with home loans, MSMEs
--IndusInd Bank: Deposit franchise showed resilience during turbulent times
--IndusInd Bank: Reviewed all accounts vigourosly
--IndusInd Bank: Acknowledge lapses were not expected from us
--IndusInd Bank: Will take all neccessary steps to restore confidence
--IndusInd Bank Chairman: Financials now reflect all aspects reported to board
--IndusInd Bank: Fincl impact of all issues already declared in FY25 result
--IndusInd Bank: Don't see growth in retail book slowing down
--IndusInd Bank: Excluding microfinance, other segments continue to be stable
--IndusInd Bank: Can't say microfinance will be back to normal next qtr
--IndusInd Bank: Microfin stress going forward to be lower from current qtr
--IndusInd Bank: See microfinance stress normalising in Oct-Mar
By Kshipra Petkar and Pratiksha
MUMBAI – After reporting several lapses in accounting and governance since March, IndusInd Bank's Chairman Sunil Mehta said they have taken into account all discrepancies in the results for the financial year ended March and will start 2025-26 (Apr-Mar) on a clean slate, he said in the post earnings analyst call Wednesday.
The private sector bank reported a net loss of INR 22.36 billion for the quarter ended March, much higher than the average of estimates of 11 brokerages which had pegged a net loss of INR 4.12 billion.
Mehta said that these irregularities which have been disclosed indicate an inadequate emphasis on accounting analysis and violation of governance norms, internal controls, disclosure and reporting mechanisms to the board.
IndusInd Bank reported discrepancies in its derivative accounting book, the microfinance portfolio and a few other matters where the bank incorrectly classified certain balance in "other assets and liabilities" as interest income instead of other income. "Based on review of all these matters and reports received by the board, the board suspects the occurrence of fraud against the bank and the involvement therein of certain employees, having a significant role in the accounting and financial reporting of the bank," Mehta said.
IndusInd Bank wrote off INR 19.60 billion as a prior period item from its internal trades derivatives accounting as notional profit since the financial year FY16. In March, the bank said an internal review found certain discrepancies in the accounts of its derivatives portfolio. The review had estimated an adverse impact of about 2.35% of the bank's net worth of INR 651.02 billion as on Dec. 31. In April, after an independent audit, the bank said the accounting hit from these trades had been estimated at INR 19.79 billion, and it would be "appropriately" reflected in the statements for FY25. The segment results showed a loss of INR 14.57 billion on account of treasury operations in the reporting quarter.
He added that the board was working with the bank's management to bring in a cultural shift towards achieving high standards of ethics and governance. "We want to build an environment of open and honest communication with all the stakeholders, prioritising long-term sustainability over short-term achievements," Mehta said.
The bank's slippages inched up to INR 50.14 billion in the latest quarter from INR 22.00 billion a quarter ago. The bank's management said that they were mainly from the misclassification of certain accounts. These were mainly from the consumer book which saw fresh slippages of INR 47.94 billion from INR 19.20 billion a quarter ago. Corporate book saw fresh slippages of INR 2.20 billion in Jan-Mar, lower than INR 2.80 billion a quarter ago.
Excluding the microfinance segment, all other segments remained stable, the bank's management said. The gross non-performing assets in microfinance for the latest quarter increased to INR 45.31 billion from INR 24.32 billion a quarter ago. The bank's management said that the slippages in the microfinance segment will remain elevated compared with other segments but will fall in subsequent quarters. They see the stress in the microfinance segment normalising in the second half of the current financial year.
"Let's see how the guardrails in the industry, election, some of the monsoon related implications happen. We are cautiously looking at this business. But normalcy (in microfinance), it may be six months away," the bank's management said. In the vehicle segment, except tractors, all other segments saw improved gross slippages.
Soumitra Sen, the head of consumer banking at IndusInd Bank, said the bank was refrainig from selling the non-performing assets to asset reconstruction companies and will try to focus on their own collection process. Due to this, there has been an increase in the gross non-performing asset ratio to 3.13% as of Mar. 31 from 2.25% a quarter ago, the net NPA ratio of the bank also increased to 0.95% from 0.68% a quarter ago. The bank has made specific provisions of INR 76.89 billion for non-performing assets and floating provisions of INR 700 million, as mentioned in the bank's investor presentation.
On the bank's balancesheet, the total loan of the bank grew merely 1% on year and fell 6% on quarter to INR 3.45 trillion as on Mar. 31 and the total deposits of the bank grew 7% on year and remained flat on a sequential basis at INR 4.11 trillion. "Our deposit franchise had shown resilience during the turbulent last couple of months. We are proactively engaged with our customers rebuilding the trust in the institution," the bank's management said.
The bank said that will continue to scale its other assets and focus on improving diversification of loan book while increasing the retail secured mix with home loans and micro. small and medium enterprise loans. The management does not expect any slowdown in the retail book going forward. On the corporate loan book, the bank had let go of some of the corporate loans for balance sheet management and liquidity management. Due to this the corporate book has reduced by 16% on a sequential basis. The bank's management said, "While we have concentrated our corporate book during the quarter, we have resumed our disbursements selectively in focus areas. And growth in corporate bank should start reflecting in the coming quarters."
The net interest income of the bank fell 43% on year to INR 30.48 billion in the quarter ended March. If the one-offs would not have been there, the net interest income would have stood at INR 47.00 billion. The management also said if they did not have these one-offs, then the net interest margin would have stood at 3.47% and pre-provision operating profit of INR 30.62 billion. In the Jan-Mar quarter, the net interest margin of the bank stood at 2.25%, down 168 basis points on quarter and 201 bps on year.
The bank's management said they have reviewed all accounts rigouoursly and understand that such lapses were not expected from them. The chairman said that they will take all steps in order to restore confidence in investors and will follow due process of law without fear or favour.
The bank's earnings for the financial year and the quarter ended March were announced post market hours. On the National Stock Exchange, shares of IndusInd Bank closed 1.6% lower at INR 769.95 on Wednesday. End
Edited by Akul Nishant Akhoury
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