Is IndusInd Bank’s Battle Over? What Should Investors Know?

IndusInd Bank has recently been in the spotlight for all the wrong reasons, like rising losses, internal fraud, and sudden leadership exits. Once considered a strong player in India’s private banking space, the bank is now under scrutiny from investors and rating agencies alike.

With market confidence shaken and regulatory pressure building, the question is: can IndusInd bounce back or is the worst yet to come? In this article, we’ll break down what’s really going on and what smart investors should keep an eye on going forward.

Financial Performance Overview

IndusInd Bank’s financial trajectory in FY25 revealed notable challenges.

In Q2FY25, the bank’s net profit declined by 39.5% year-on-year to ₹1,331 crore, primarily due to an 87% surge in provisions, totaling ₹1,820 crore. Despite a 5% increase in Net Interest Income (NII) to ₹5,347 crore, the Net Interest Margin (NIM) compressed to 4.08%, influenced by a reduced share of microfinance loans.

Q4FY25 presented further difficulties, with the bank reporting a net loss of ₹2,329 crore (the first in two decades) attributed to heightened provisioning and accounting discrepancies.

These financial strains have impacted investor sentiment, reflected in the IndusInd Bank share price. As of June 5, 2025, the stock is trading at approximately ₹800, which is about 48% below its 52-week high of ₹1,550 reached in June 2024.

Key Challenges Facing IndusInd Bank

IndusInd Bank is currently grappling with significant challenges that have raised concerns among investors and regulators. Here’s an in-depth look at the key issues:

1. Deteriorating Asset Quality

IndusInd Bank’s asset quality has significantly worsened, primarily due to issues in its microfinance portfolio.

In Q4 FY25, the bank reported slippages of ₹5,014 crore, with ₹4,531 crore coming from microfinance loans. This led to the microfinance segment’s Gross NPA ratio escalating to 13.18% from 7.05% in the previous quarter.

The surge was attributed to the reclassification of ₹1,800 crore in previously misclassified loans and accumulated stress over nine months, notably from regional challenges like the Karnataka DV penalty event.

2. Internal Fraud and Accounting Irregularities

IndusInd Bank is grappling with significant internal fraud and accounting irregularities. An internal audit revealed that ₹172.58 crore was misclassified as fee income in its microfinance division over three quarters, which was corrected in Q4 FY25.

On top of that, a PwC audit uncovered a ₹1,979 crore loss in the derivatives portfolio due to improper accounting practices spanning several years.

These lapses have led to substantial financial losses and raised serious concerns about the bank’s governance and internal controls.

3. Leadership Resignations and Governance Concerns

In April 2025, IndusInd Bank saw major leadership exits as CEO Sumant Kathpalia and Deputy CEO Arun Khurana stepped down following the exposure of serious accounting lapses linked to its derivatives portfolio.

Kathpalia stepped down on April 29, citing moral responsibility for the lapses, while Khurana resigned a day earlier, acknowledging oversight failures in the treasury front office.

These resignations are part of broader corporate actions aimed at addressing governance concerns and restoring stakeholder confidence.

4. Regulatory Actions and Credit Rating Downgrades

Moody’s downgraded IndusInd Bank’s standalone credit profile from ‘ba1’ to ‘ba2’ and revised its outlook to negative, citing concerns over internal control weaknesses and leadership instability following significant accounting discrepancies.

Similarly, CRISIL placed the bank’s long-term debt instruments on ‘Rating Watch with Negative Implications’, reflecting apprehensions about governance lapses and the need for strengthened internal financial controls.

What’s Next for IndusInd Bank?

IndusInd Bank is actively working to recover from recent financial and governance challenges. The bank is enhancing its digital services through the INDIE app, aiming to improve customer experience.

Leadership changes are underway, with new appointments expected to strengthen governance. Promoter support from the Hinduja Group provides additional stability.

Many anticipate a gradual recovery, with improvements in profitability and asset quality over the next few years. Investors should monitor these developments closely.

Conclusion

IndusInd Bank is at a turning point, facing pressure to rebuild trust after financial and governance issues. With leadership changes, promoter backing, and digital banking initiatives underway, the path to recovery is in motion. However, stability will take time. Investors should stay cautious and watch for consistent improvements before making any long-term decisions.