0% return in 10 years: CA highlights case of IndusInd Bank share saying Rs 1,000 in 2014, would still be Rs 1,000 in 2025

IndusInd Bank faced an unprecedented setback on Tuesday as its shares plummeted by 27%, marking their worst single-day fall in history. The trigger? A shocking revelation of an accounting mismatch linked to forex derivative transactions. The discrepancy, amounting to Rs 1,577 crore post-tax, is equivalent to 2.35% of the bank’s net worth as of December 2024. This sent shockwaves through the market, pushing the stock to a 52-week low of Rs 655.95 per share—its lowest since November 2020.

Market observers were quick to react. CA Nitin Kaushik, a finance expert, took to social media to highlight a decade of stagnation for the bank’s stock:

"IndusInd Bank – A decade of zero returns! If you had invested ₹1000 in Sep 2014, it would still be ₹1000 in 2025. No growth in 10+ years. �� Stock fell 27% due to accounting issues �� 50% promoter holdings are pledged �� CFO resigned, CEO got just a 1-year extension from RBI. A stock trading below book value doesn’t always mean it’s a bargain. Do your research before investing!"

What Went Wrong at IndusInd Bank?

The stock crash came after a series of troubling developments. A day earlier, on Monday, IndusInd Bank had already fallen by 6% following the news that its CEO, Sumant Kathpalia, received only a one-year extension from the RBI instead of the expected three-year term. Market confidence was further shaken by the bank’s weak third-quarter results, which saw a 39% year-on-year drop in net profit and a rise in non-performing assets (NPAs).

But the biggest blow came from an internal audit that revealed a serious miscalculation in the bank’s forex hedging costs. Over the past five to seven years, IndusInd Bank had been incorrectly accounting for its hedging expenses in foreign exchange transactions, leading to a cumulative impact of Rs 2,100 crore on its net worth.

The RBI Steps In: Could Other Banks Be Affected?

The scale of IndusInd Bank’s accounting error has prompted the Reserve Bank of India to take action. According to reports, the RBI has reached out to several major banks to assess their forex derivative positions and ensure their hedging effectiveness. The regulator’s swift intervention suggests concerns that IndusInd Bank may not be the only lender with similar miscalculations.

This comes at a time when India’s banking sector is largely seen as having moved past its legacy bad loan problems. The sector has seen a significant improvement in asset quality, with NPAs dropping to a 12-year low of 2.6% in September 2024. However, as recent events show, risks remain.

Banking Sector Strengths and Lingering Risks

Bad Loans at Record Lows

The Indian banking system has made significant progress in reducing bad loans. According to RBI data, the gross NPA ratio of scheduled commercial banks fell to 2.6% in September 2024, down from 4.5% in March 2023. Even among large borrowers, asset quality has improved, with the NPA ratio dropping to 2.4%. Notably, none of the top 100 borrowers were classified as NPAs as of September 2024.

Profitability on the Rise

Profitability in the sector has also improved. The profit after tax (PAT) for scheduled commercial banks grew by 22.2% year-on-year in the first half of FY 2024-25. Public sector banks saw the strongest growth at 30.2%, while private sector banks posted a 20.2% increase. Robust earnings and capital buffers have strengthened overall banking resilience.

Lingering Concerns: Deposit Growth and Microfinance Stress

Despite these improvements, challenges persist. Deposit growth remains sluggish, with the incremental loan-to-deposit ratio reaching 126% as of February 2025. Banks are lending at a faster pace than they are attracting deposits, raising concerns about long-term liquidity sustainability.

Meanwhile, stress in the microfinance sector is mounting. The gross NPA ratio for microfinance loans hit 11.6% in September 2024, the highest in 18 months. Some small finance banks have been placed under ‘close supervision’ by the RBI due to their high exposure to risky micro-loans.

Investor Sentiment and Brokerage Reactions

While IndusInd Bank’s stock recovered slightly on Wednesday, rising 4.43% to Rs 685, investor sentiment remains fragile. Several brokerages have issued warnings about the bank’s governance and credibility:

• Morgan Stanley flagged further downside risks.
• Macquarie raised concerns over internal processes.
• Kotak Securities downgraded the stock to ‘reduce’, warning that it could take multiple quarters to regain trust.

What Lies Ahead for IndusInd Bank?

The immediate priority for IndusInd Bank is damage control. The bank must restore investor confidence by strengthening its governance, improving transparency, and addressing its accounting lapses. The RBI’s ongoing review of forex derivative practices across the sector will likely bring further scrutiny.

In the broader banking landscape, the sector remains fundamentally strong, but pockets of risk—such as unsecured lending and slow deposit growth—need close monitoring. As financial markets digest the implications of IndusInd Bank’s crisis, investors will be watching closely to see how the bank navigates the road ahead.