IndusInd Bank Reports Significant Q4 Loss of Rs 2,329 Crore Amid Challenging Conditions
Fraud-hit IndusInd Bank has reported a staggering net loss of ₹2,329 crore for the March quarter, marking its worst financial performance to date. This significant downturn is attributed to a series of one-time adjustments aimed at rectifying past accounting errors and governance failures. The bank’s troubles stem from issues related to incorrect reporting of derivatives and misclassification of microfinance assets, leading to a sharp increase in non-performing assets (NPAs).
Financial Setbacks and Governance Issues
IndusInd Bank’s recent financial results reveal a troubling landscape, with fresh slippages reaching ₹5,014 crore. Of this, ₹1,800 crore has been identified as misclassified stress in the microfinance sector, now recognized as gross NPAs. The overall gross NPA ratio has surged to 3.13% as of March 31, up from 2.25% in the previous quarter and 1.92% a year earlier. These alarming figures follow a whistleblower complaint that triggered internal audits and forensic reviews, exposing deep-rooted governance failures within the institution.
The bank has acknowledged a ₹1,960 crore loss due to incorrectly accounted derivative trades and has reversed ₹674 crore of cumulative interest income that was inaccurately recognized over the fiscal year 2025. Additionally, ₹172 crore was reported as fraud, stemming from employees who falsely classified the amount as fee income in the microfinance division. The internal audit department also flagged ₹595 crore in “unsubstantiated balances” in other assets, which were adjusted against liabilities in January.
Leadership Changes and Future Strategies
In light of these significant lapses, IndusInd Bank has seen the resignation of its Managing Director and CEO, Sumant Kathpalia, along with Deputy CEO Arun Khurana. Their departures followed allegations of insider trading and leadership failures. The bank’s board has appointed veteran banker Sunil Mehta to oversee the transition in a non-executive role. Mehta expressed regret over the governance issues but assured analysts that all problems have been identified and addressed. He emphasized the bank’s commitment to starting the fiscal year 2026 with a clean slate and is in the process of selecting a new CEO with strong ethical foundations.
Despite the financial turmoil, management insists that the underlying business remains robust. The bank plans to shift its focus towards secured consumer and small business loans while adopting a cautious approach to corporate lending. This strategic pivot aims to stabilize the bank’s financial health and restore investor confidence.
Impact on Financial Performance
The repercussions of the bank’s governance issues are evident in its financial performance for the fiscal year 2025, where net profit plummeted by 71% to ₹2,576 crore from ₹8,977 crore in the previous fiscal year. Provisions surged to ₹7,136 crore, up from ₹3,885 crore, reflecting the bank’s efforts to cushion against further losses. Net Interest Income also declined to ₹19,031 crore from ₹20,616 crore a year earlier, with core net interest income for the fourth quarter dropping 43% year-on-year to ₹3,048 crore.
The bank’s corporate loan book contracted by 16% sequentially to ₹1.43 lakh crore, a tactical decision aimed at maintaining liquidity buffers. Additionally, other income fell sharply by 72% to ₹709 crore in the March quarter. These financial challenges have not gone unnoticed, as Moody’s recently downgraded the bank’s standalone credit profile to ‘ba2’ from ‘ba1’, citing governance and internal control weaknesses.
Looking Ahead: Strengthening Internal Controls
In response to the recent setbacks, IndusInd Bank has engaged PwC and Grant Thornton to conduct forensic audits and assess the extent of the damage caused by the misreported derivative trades, which PwC estimates at ₹1,979 crore as of June 2024. The bank has committed to enhancing its internal controls and oversight mechanisms to prevent future lapses.
Despite the challenges, deposit levels have remained stable, although the share of low-cost CASA deposits has decreased to 33%. The bank’s capital adequacy ratio stands at a healthy 16.24%, with core tier-1 capital at 15.10%, which management believes is sufficient to support future growth. On the stock market, IndusInd Bank shares closed 1.39% lower at ₹771.10 on Wednesday, reflecting investor concerns amid the ongoing turmoil.
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