The Curious Case of IndusInd Bank

Stocks
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Really. Does the price of a stock and its movement vis a vis index or sector give indicators that there is something fishy.

I read a article by meher, a very detailed one. After reading that it would be impossible to adjudge fishy or not

Going by this logic hdfc going by its price movement must be a rotton fish by now, same with kotak,

I used to hold both and thankfully exited kotak.

Would like ro know your premise how to judge a bank not doing the correct thing as per regulations.

As per the near flawless article by meher it was RBI new regulation which put spanner in their process. If not they would have written off the losses in many future quarters.

If Rbi, external auditors, internal auditors could not do much, how can a price movement within index, sector can be used to figure out there is something wrong in a bank.

This issue was on going for few years now but had to be crystallised due to rbi new rules.

Yes bank. Did anyone knew that this will go to moratorium?

I maybe wrong but it would be nice to know the reasoning.

Rbi slapped kokat one of the supposedly clean and astute bank on credit card. Something similar was done to the great hdfc.

These things happen i guess.

Things will go wrong if there is a run on the bank. Till now nothing i believe. Hope nothing as well.

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@neha1101 The stock has fallen as much as it did, because there is a large section of investors that believe there maybe more than whats revealed. Otherwise this issue (as stated) doesnt warrant this much dumping. There will always be sceptics and believers - often truth lies in the grey zone…

Honestly when two top executives dump majority of their shares, its not a good look. I have seen this happen before, and its usually not a good sign.

Btw IndusInd Bank is around the same price it was in 2014. If the current fiasco is the only thing hampering IndusInd it could well be a good bargain for new investors… But is it?

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This curious case of Indusbank really shows how important it is to have effective internal controls and risk management systems. Identification of such errors in financial institutions can greatly affect their reputation.

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yup. Single day movement like that doesn’t look good in my experience. Insiders selling large stake before, just general stock movement after 2020 vs everything else. Market thinks its fishy. With banks, this is esp more risky as they are leveraged.

Market can be wrong too, but is often right. I have been here before when i was ‘investing’ in ‘value’ stocks, much worse than this one. Being emotional or defensive about it, or just selectively looking for things that confirms what you want isn’t going to help.

Market doesn’t care what me or you or meher thinks.

Uncertainty is part of life in stocks. Nobody knows for sure if there is more except insiders. But once market starts not trusting, it wont be easy to get high valuation for a company.

Yes nothing is certain. Else stock price would be going towards 0 or straight up to where it ‘should’ be. From his own article what i got is - there is issue, seems small, market thinks or fears that it could be more, even if all is well it would be difficult/time consuming for people to trust it again.

I have no stake in this, hopefully it goes back up else i will have 1 less stock to trade. Good luck.

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Depends on , person to person perception :slightly_smiling_face:

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In continuation to the Yesterday’ 's replay , Following RBI Rules about Share Holding limits in a particular Bank affected the promoters like Kotak Mahindra Bank & Indus Ind Bank , No promoter cannot do effective Management by holding less then 26% , so probably Indus ind Bank promoter holding is less then 20% and probably no more interest in running the Bank , After the RBI rules Kotak Mahindra Bank stock price is in a range from a long time & not doing good . May be like Yes Bank other lined up banks are Yes Bank , Kotak Mahindra and Indus Ind bank :thinking:
Shareholding limits

  • Promoters: After 15 years, promoters can hold up to 26% of a bank’s paid-up share capital
  • Non-promoters: Natural persons, non-financial institutions, and financial institutions can hold up to 10% of a bank’s paid-up share capital
  • Financial institutions, public sector undertakings, and the government: Can hold up to 15% of a bank’s paid-up share capital

Approval requirements

  • Anyone who wants to acquire a major shareholding in a bank must get prior approval from the RBI
  • The RBI’s decision to grant or deny approval is binding on the applicant and the bank

Lock-in periods

  • Shares acquired between 10% and 40% of a bank’s paid-up equity share capital must remain locked-in for five years
  • Shares acquired at or above 40% of a bank’s paid-up equity share capital must remain locked-in for five years, but only 40% of the shares

The RBI may permit higher shareholding than the above limits on a case-by-case basis.

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I am considering buying it if I get below ₹ 600. It may be a value trap. May be another Yes bank in making but I am willing to take that risk.

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Read your points but cant agree. But anyway it does not matter.

This is the beauty of stock market.

As long as individuals make money its fine. If they lose its still fine but should not go down because of FRAUD.

On hindsight anyone can say this was bound to happen bit just cannot agree that price movement of a stock can show that there was fraud.

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On the topic of fraud…

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hey, that’s all fine, but its out of our control. So some losses might happen due to fraud as well for an investor in stocks. Probably happens to the best of them too.

So we cant assume that there isn’t going to one, that’s all. Rest is fine, some profit some loss, with hope that net is competitive with basic buy and hold.

It can indicate possibility, market keeps trying to guess correct value of stock. I never said that there is 100% fraud and more is coming.
Even if there isn’t one, whos to say that the fall is wrong. Perhaps high price was wrong and current price is right ?

I have seen multiple times, that for a layman to ignore market fears/pessimism in an individual stock, esp against rest of the market, is generally a folly. Even if price doesn’t go down, upside may not be great. I would definitely ignore what insiders say when such things happen, their interests may not be aligned with ours. Time till tell.

This does not apply to a specialist who knows what he is doing and takes a bet either with or against the market.

Anyway, good luck.

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Theres a paywall @neha1101

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Don’t worry. Not missing out on any unique insight beyond what’s already discussed in this thread.
The article has some dates and numbers. Proper factual reporting.

Here’s a screenshot -

image
image600×1560 84.8 KB

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he Reserve Bank of India (RBI) on Saturday (March 15) issued a statement addressing speculation regarding IndusInd Bank Ltd, stating that the bank remains well-capitalised and financially stable.

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Rbi is asking all banks to certify that they are following the correct accounting procedure. This news was not available in any of the articlesand that is new to me.

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https://www.reuters.com/business/finance/indusind-bank-stung-by-accounting-lapses-raised-2-billion-via-market-deposits-2025-03-26/

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By issuing CDs, the bank may want to shore up its overall deposit base and maintain higher liquidity to counter uncertainty on deposit withdrawals

RBI asked some state-run and private-sector banks to subscribe to IndusInd Bank’s bulk deposit CDs, two sources from banks that have subscribed to these instruments said.

This is funny, right.

After the news of the accounting discrepancy, IndusInd is worried that depositors might pull out some money, causing a liquidity crisis and so they are issuing more CDs.

But ultimately, it’s probably the debt mutual funds and other banks, that are mostly subscribing to these CDs.

i.e., It is the same public (retail and depositors of other banks) who are probably pulling out, that are indirectly subscribing to it.

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More clarity - fcnr deposits being one of the core factors.

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A nice read. :nerd_face::+1:
The article sheds some light on what happened.

However, upon reading it i grew confused than before… :sweat_smile:
(as it introduced a few more concepts/constructs that i didn’t fully understand yet)

Also, based on the answer to “Q3” below,
a lot of the details could be superfluous. :man_shrugging:

Here’s the relevant bit from the above article…

How Did the Loss Happen?

When an NRI deposits $1 million, the bank converts it into rupees—let’s say at ₹86 per USD, giving ₹8.6 crore. The bank can then lend or invest this amount. However, when the deposit matures, it must be returned in dollars. If the exchange rate changes significantly, the bank could suffer losses.

To manage this risk, the bank’s Asset-Liability Management (ALM) Desk shifts the liability to the Trading Desk through an internal derivative trade. The Trading Desk, in turn, hedges this externally using currency swaps with global banks to lock in exchange rates.

In theory, these hedges should cancel each other out. However, IndusInd Bank used different valuation methods:

  • The external hedge was marked to market (MTM) - valued daily at fair market prices.
  • The internal hedge followed swap cost accounting, causing a mismatch in valuations.

The problem arose when the bank repaid some foreign borrowings earlier than expected, forcing it to unwind the internal trades. This exposed the accounting gap, leading to a loss that had been incorrectly recorded as “intangible assets” instead of being provided for.

…and the Qs this raised in my mind upon reading it-

the bank’s Asset-Liability Management (ALM) Desk shifts the liability to the Trading Desk

Q1. Is the “trading desk” still considered a part of the bank or not?
(i.e. where does one draw the line to determine a loss/profit for the entity “IndusInd bank” )

The external hedge was marked to market (MTM)
The internal hedge followed swap cost accounting

Q2. Are these approaches the norms in respective domains?

  • “MTM” on external open hedges out in the public market?
  • “Swap-cost” on internal hedges carried out off-market?

The problem arose when the bank repaid some foreign borrowings earlier than expected, forcing it to unwind the internal trades

Q3. Why exactly did unwinding some internal trades/hedges sooner than expected result in “exposing accounting gap”? Couldn’t the external trades/hedges be unwound at the same time (or were they NOT callable, i.e. applicable ONLY at the originally agreed-upon time in future, not anytime during) ?

IMHO, here’s the potential key issue -

  • if the deposits held by the bank were call-able
    • as apparently the case was,
      as the bank had to repay some deposits sooner than originally expected,
  • and the external forex-hedges held by the bank were NOT call-able
    • as apparently they did not call them when repaying the deposits (to nullify the loss)

…clearly they overlooked the risk (or underestimated the likelihood of this scenario).

i.e. did not match the assets with liabilities using approaches like -

  • Requiring a larger penalty on the depositors for any pre-mature withdrawal
    (necessary to offset this risk i.e. to ensure there would be no loss even in this scenario)
  • or obtaining a call-able forex-hedge (presumably requiring higher premiums)
    that was required to fully de-risk this situation.

Essentially, it looks like in this scenario, the bank
instead of being a smart “the house always wins due to the Vig” bookmaker,
was caught gambling with its own money! :sweat:

Apart from the obvious reason - greed,
maybe someone who understands banking better,
can chime-in if this is exactly what has happened (or something else as well),
and if there’s anything apart from greed to explain/justify such behavior.

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points I am aware off

Most banks who have NRI customers faced the below issue

4 or 5 years back Fcnr usd deposits interest rate in india was low. However last one or two years the rate increased and now few banks are giving upto 6.10 percent. In these cases all or majority of customers prematurely closed the deposits which were lower and rebook the same at higher rates Customers were willing to pay the premature closure fee. The only condition was these existing deposits should run min one year.
Indus ind was one of the bigger nri customer bank. They must have faced this issue where the existing fcnr book must have been closed and faced this issue.

For a customer she closes and reopens but if the bank had converted a portion of the deposit when received or over the period to inr, they will face this issue as mentioned in the article also currency had depreciated. If proper hedge was not in place there will be a loss

I have a friend in idfc, this bank is also a nri heavy customer. She told me the above. They had to rebook most of the deposits. In one case the one year deposit was higher then the booked 5 year deposit and bank based on relationship gave higher rate when the deposit was closed and applied the standard penality.

When fd are closed bank will take the tenor upto which the fd had run and on this rate the penality is applied. For many hnw customers, to retain the deposit with same bank, penality was even waived.