Indusind Stock Crash / Why did IndusInd Bank face trouble, shares sank... will the bank also sink now?

Indusind Stock Crash: The stock price of leading private sector bank Indusind Bank has fallen by more than 27% in a single day. This massive fall has affected not only the banking sector but the entire market. Questions are arising in the minds of investors whether its condition will also be like Yes Bank? Let us understand the cause and possible impact of this crisis.

Ownership and history of Indusind Bank

Indusind Bank is owned by British-Indian group 'Hinduja Group', which also operates automotive companies like 'Ashok Leyland'. The bank was founded in 1994 and was among the 9 private banks that received licenses that year.

Reason for stock crash

Indusind Bank's stock has fallen by more than 40% in the last one year. The main reason for this decline is said to be a discrepancy of Rs 1,600 to 2,000 crore in the bank's forex derivatives portfolio. This amount is about 2.35% of the total net worth of the bank. When this information became public, the bank's stock price fell sharply as investors reacted.

Comparison with Yes Bank: Will history repeat itself?

Yes Bank's failure was mainly due to oversight in corporate governance and irregularities in the loan portfolio. Although the case of IndusInd Bank is slightly different from this, the lack of transparency and concern about financial irregularities have made investors cautious.

What is a forex derivative portfolio?

Forex currency derivatives are financial instruments whose value depends on foreign exchange rates. They are used to hedge currency risk. The main reason for IndusInd Bank's problem is that it miscalculated its hedging cost, which affected the valuation of the portfolio.

How was the mess exposed?

In September 2023, the Reserve Bank of India (RBI) issued new guidelines on derivatives. After this the bank got its loan and derivatives account investigated. The report made available to the stock exchange on March 10 revealed irregularities worth Rs 1,600 to Rs 2,000 crore.

Impact on investors

After this news, not only IndusInd Bank's shares but also the Nifty banking index fell by 0.75%. The bank's investors lost more than Rs 15,000 crore. Brokerage firms also changed their ratings on the bank's stock:

• Emkay Global changed the stock's 'buy' rating to 'add' and set a target price of Rs 875.
• Nuvama advised to hold or reduce the stock and set a target price of Rs 750.
• Motilal Oswal gave it a 'neutral' rating and set a target price of Rs 925.

Future of IndusInd Bank

IndusInd Bank has started a detailed internal review to improve the situation and has assigned the responsibility of investigation to an external agency. This agency will ensure that the financial position of the bank remains stable and investor confidence is restored.

Conclusion

At present, IndusInd Bank is not in a situation like Yes Bank, but due to financial irregularities, investors' concerns have increased. The decision on the future of the bank will depend on its upcoming review report. Investors need to be cautious at the moment and keep an eye on the situation.