IndusInd Bank has been downgraded from “Buy” to “Hold” by Mirae Assets, with a revised target price (PT) of Rs. 750, following a series of negative developments that have raised concerns over the bank’s governance and earnings outlook. These include the resignation of the Chief Financial Officer (CFO), the Reserve Bank of India’s (RBI) decision to grant a shorter tenure extension to the CEO, and potential losses related to the bank’s derivative portfolio.
In its latest review, the bank disclosed a potential 2.4% hit to its net worth (around Rs. 1,520 crore post-tax), stemming from discrepancies found in its derivative transactions over the past 7-8 years. This issue, which was identified during an internal review in October 2024, primarily involves hedging transactions related to foreign currency deposits and borrowings from FY24 and earlier. While the bank has appointed an external agency to verify these findings, the internal review has already projected that the impact will be absorbed as a one-time charge in Q4FY25.
Despite the bank’s cheap valuations at 0.7x FY26E book value, Mirae Assets notes that the uncertainty surrounding the management’s stability, the potential for further regulatory interventions, and weak earnings visibility make it difficult to build a strong investment case for IndusInd Bank. The bank has also been under scrutiny for internal control lapses and risk management issues, which further undermine investor confidence.
Mirae Assets highlights that the key catalysts for any turnaround include the absence of any further adverse findings from the external audit, stronger internal controls, and a change in leadership with the appointment of a new CEO. The bank’s ability to recover earnings through improvements in asset quality, particularly in the microfinance and unsecured retail segments, will also be crucial. Additionally, an increase in the promoter’s stake, subject to regulatory approval, could signal greater confidence in the bank’s future.
In the near term, however, Mirae Assets remains cautious, with sentiments dampened by recent management upheavals and regulatory scrutiny. The bank’s weak earnings outlook for FY26, coupled with muted visibility, further reinforces the cautious stance.
Key Risks to Upside: Earnings recovery through asset quality improvement, the appointment of a competent successor for the CEO, and no further adverse action from the RBI.
