Daijiworld Media Network- Mumbai

Mumbai, May 8: IndusInd Bank's long-term debt instruments have been placed under a "Rating Watch with Negative Implications" by global credit rating agency Crisil, following recent internal developments that have raised concerns about the bank’s management stability and financial controls. This includes Rs 4,000 crore worth of tier II bonds and Rs 1,500 crore in infrastructure bonds.

The credit rating agency’s decision follows the resignation of two senior executives at the bank, coupled with disclosures that the bank's internal audit department is reviewing its microfinance business. This internal review was initiated due to concerns that arose during the finalization of the bank's accounts, further exacerbating the situation.

Crisil also cited earlier concerns about the bank’s accounting practices, particularly related to derivatives. In March, the bank revealed issues in how it accounted for some derivatives, which led to a deepening of the worries surrounding the bank's financial health.

While Crisil highlighted that there had been no significant outflow of deposits over the past two months, the bank has experienced a slight decline in deposits from retail and small business customers. As of March 31, the bank reported total deposits of Rs 4.11 trillion, with a current and savings account (CASA) ratio of 32.8%, down from Rs 4.09 trillion and a CASA ratio of 34.9% as of December 31, 2024. Retail and small business deposits dropped from Rs 1.89 trillion to Rs 1.85 trillion in the same period.

Crisil has indicated that it will continue to closely monitor the bank’s situation, especially the steps it takes to address the issues with its internal controls and operational stability. The agency will also be watching how these challenges affect the bank’s profitability and deposit patterns moving forward.

The problems for IndusInd Bank began in March when the bank disclosed an internal review that uncovered discrepancies in its derivatives portfolio. This led to an estimated reduction of 2.35% in the bank's net worth as of December 2024.

The bank subsequently hired PwC to validate the findings, and PwC estimated a loss of Rs 1,979 crore in the derivatives portfolio as of June 30, 2024. This would result in a 2.27% impact on the bank’s net worth after tax. Later, independent firm Grant Thornton was brought in to investigate the root cause of the discrepancies. Their report revealed that improper accounting of internal derivative trades, particularly in cases of early termination, led to notional profits being recorded that did not actually exist.

The final assessment showed a total adverse impact of Rs 1,959.98 crore on the bank’s profit and loss account as of March 31. Despite these setbacks, Crisil noted that the bank’s capital position and profitability, before provisions, were expected to absorb the financial hit.

Crisil’s continued scrutiny underscores the importance of ensuring strong internal controls and transparency at IndusInd Bank as it navigates these challenges.