IndusInd Bank Share Price Target: BOB Capital Markets Downgrades Amid Derivative Saga - Details

BOB Capital Markets, a wholly owned subsidiary of Bank of Baroda, has downgraded the stock of IndusInd Bank from ‘Buy’ to ‘Hold’ following the revelation of accounting discrepancies in its derivative portfolio. The brokerage firm has revised its target price to Rs 870, indicating a potential 3 percent decline from current levels.

About the discrepancy

A recent report by BOB Capital Markets highlighted that IndusInd Bank identified inconsistencies in its derivative portfolio related to foreign currency deposits and borrowings. The bank estimated that these discrepancies would have a pre-tax negative impact of approximately Rs 21 billion, which equates to around 2.35 percent of its net worth as of December 2024.

These irregularities, reportedly spanning a period of five to seven years before April 2024, was found out during an internal review and were subsequently disclosed in September/October 2024.

Regulatory and Management Response

The report also raised concerns regarding management stability at IndusInd Bank, particularly in light of the Reserve Bank of India’s (RBI) decision to extend the tenure of MD & CEO Sumant Kathpalia by only one year instead of three years requested by the bank.

This move came in the wake of central bank's awareness of the derivative accounting issues, signaling a cautious regulatory approach.

Financial Impact and Market Outlook

BOB Capital Markets noted that IndusInd Bank’s stock had already got a severe hammering due to these developments. The one-time negative impact on earnings is expected to be reflected in the Q4FY25 financial results, further clouding earnings projections. Furthermore, the bank’s provisioning for its microfinance portfolio is likely to contribute to ongoing credit cost challenges in the near future.

Stock Rating and Revised Target Price

Based on the aforementioned factors, BOB Capital Markets has reduced its rating on IndusInd Bank and reduced its target price from Rs 1,190 to Rs 870, valuing the stock at 0.9 times its FY27 Adjusted Book Value (ABV). The downgrade reflects apprehensions regarding strategic direction, regulatory scrutiny, and management transitions.

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