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Informist, Monday, Jul. 28, 2025

By Kabir Sharma and Vaishali Tyagi

MUMBAI – The board of directors and the top management of IndusInd Bank are focused on solving the bank's leadership crisis, Chairman Sunil Mehta told analysts and investors in a post-earnings conference call. "Since we did lose the former CEO (chief executive officer), the deputy CEO, and the CFO (chief financial officer), so it's quite natural for us to revisit our current management leadership team... so wherever there were any open gaps, we are looking at both internal and external candidates and sort of filling that up. I think all the building blocks from a management leadership team are being looked at very, very closely," he said.

IndusInd Bank has been making headlines the past few months after reporting discrepancies in its derivatives portfolios in the March quarter. Since then, the bank has seen the exits of several members of its top management team, among them Chief Executive Officer Sumant Kathpalia and Deputy Chief Executive Officer Arun Khurana.

IndusInd Bank had disclosed in March discrepancies in the accounting of its derivatives portfolio. The March quarter results showed the bank wrote off INR 19.60 billion, in addition to making provisions of INR 24.17 billion, almost three times the provisions it had made in the corresponding quarter a year ago. This included INR 17.91 billion of provisions for microfinance loans misclassified as standard assets and on which interest income had accrued.

The bank's net profit for the June quarter declined 68% on year as provisions increased nearly 66%. This is the private-sector bank's biggest on-year decline in profit since 2016, according to data available with Informist. At INR 6.84 billion, the net profit also missed the Street's estimate of INR 7.21 billion.

Mehta said the bank had now stopped internal treasury deals. "During quarter one (Apr-Jun), the board and the management have spent considerable time and effort towards resolving the concerns relating to legacy, treasury, and microfinance issues as identified in the previous quarter," he said. "In treasury, we have stopped internal deals and we have begun a process of upgrading the treasury Calypso system to the latest version with enhanced functionality of trade management, controls, and monitoring."

The leadership transition in the bank is also well on track, the chairman said, and the bank has made progress in the process of appointing its next chief executive officer. "There has been no change by the bank in its CEO recommendations as were submitted within the prescribed timeline to the regulator," Mehta said. The bank is also actively identifying top-quality talent internally and externally for the senior management, he said. 

The new chief executive officer will lay out a detailed strategic roadmap and implement it, Mehta said. According to media reports, among the names with the RBI to take the helm of the private-sector lender are Anup Saha, who recently resigned as managing director of Bajaj Finance Ltd., Rajiv Anand, currently deputy managing director at Axis Bank, and Rahul Shukla, former group head at HDFC Bank.
 

The management said it is now focused on reducing operational expenditure. The bank, which saw a rise of over 20% on year in operational expenditure in the past three years, is working to bring the growth down to a single digit in the foreseeable future, the management said.

There is also a renewed effort to increase recoveries, the management said. "We are scaling up our collection efforts to recover dues from the accumulated slippages," it said. "We are targeting the upgrades and recovery run rate for the year to be comfortably better than the last couple of years."

The bank wrote off INR 6.64 billion in Apr-Jun, almost a third of the INR 18.16 billion written off in the March quarter. Recoveries during the quarter were INR 2.39 billion, lower than INR 3.11 billion in the trailing quarter.

The bank aims to reduce its savings account rate by 40-50 basis points in the current financial year and is focused on bringing down further the overall cost of deposits, the management said. "We are not hesitating in cutting rates and we do believe there is further scope to cut both savings account as well as term deposit rates. Improving the quality of deposits along with reduction in cost of deposits continues to be our immediate priority," it said.

In its endeavour to lower the cost of funds, the bank is refraining from raising bulk deposits and issuing certificates of deposit, the management said. "We have let go of bulk deposits and certificates of deposit, which has helped us in the generalisation of our deposit base," it told investors. "We have carried excess liquidity during the quarter ending Jun. 30, which we have started deploying now in accretive purposes." The CDs raised in Apr-Jun were down around 12% quarter on quarter, they said. The bank also did not issue CDs because of the prevailing rates in the market and as there was ample liquidity available, the management said.

The bank believes its financial return metrics are still below potential owing to the developments it witnessed in the June quarter. "We have seen a steady recovery in our core businesses, and our aim will be to show consistent and predictable improvement every quarter on our financial metrics from here onwards," the management said. However, the bank, which is among the constituents of the benchmark Nifty 50 index, will be cautious of foraying into the unsecured loans segment. "We are progressing on building a sustainable bank in areas of our expertise... we are growing in vehicle, retail, mid and small corporates, granular liabilities, etc... we remain cautious on unsecured segments," the management said. However, the demand for vehicle loans is expected to remain muted in the current financial year and the bank is not in a position to give guidance on loan growth for the full year, it added.

In terms of asset quality, the bank said it expects slippages to stabilise by the December quarter and then remain range-bound. The management expects slippages to remain range-bound as the year progresses, supported by improvement in economic activity. The bank has also not sold any bad loans to asset reconstruction companies, choosing instead to focus on internal collections. "This, however, led to an increase in period-end GNPA (gross non-performing asset) ratios for the interim period," they said. The gross non-performing asset ratio worsened to 3.64% in June from 3.13% a quarter ago and 2.02% a year ago. The net non-performing asset ratio rose to 1.12% from 0.95% in the March quarter and 0.60% a year ago.

The bank said it has enough capital available for the current growth. "Growth is, as you know, in single digit or almost flat for this year," the management said. "We will have to see how the year goes. So capital-wise, I think we are now very well placed. We don't need capital." 

The bank will also look to appoint two new whole-time directors, Chairman Mehta said. "So as we sort of move towards building the leadership team, after we have the MD (managing director) and CEO in place, we will also look at creating two whole-time directors in due course," he said. Closing the call, Mehta said, referring to the derivatives fiasco, that whatever "we have witnessed over the last three to four months, it should have never happened". Monday, shares of IndusInd Bank closed 2.6% lower at INR 802.05 on the National Stock Exchange.  End

Edited by Rajeev Pai

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