IndusInd Bank stocks fall 20 pc, mutual funds lose over Rs 6,000 crore

In a major jolt to investors, IndusInd Bank’s stock nosedived by 20 per cent on 11 March, leading to a staggering erosion of over Rs 6,000 crore in mutual fund holdings. The sharp correction followed the bank’s disclosure of a 2.4 per cent impact on its net worth due to discrepancies in the valuation of derivative transactions.

IndusInd Bank has estimated an adverse impact of Rs 1,530 crore due to irregularities detected in its derivative portfolio. The bank conducted an internal review as per directions issued by the RBI (Reserve Bank of India) in September 2023. The guidelines related to investment portfolios of lenders, particularly focusing on 'Other Asset and Other Liability' accounts. During this review, the bank identified discrepancies in these account balances, estimating a 2.35 per cent hit to its net worth.

Brokerages are now concerned about the ripple effects on investor confidence, with many slashing their target prices for the stock.

Indeed, the stock’s 20 per cent fall exceeded most estimates, continuing its downtrend for the fifth consecutive trading session. The financial impact, although significant, is not the primary worry — analysts warn that it is the bank’s credibility that may take several quarters to recover.

IndusInd Bank's stock plunge has dealt a heavy blow to mutual fund investors in particular. As of February, 35 mutual funds collectively held more than 20.88 crore shares, valued at Rs 20,670 crore, according to Ace Equities. However, after the stock’s recent fall, this value has shrunk to Rs 14,600 crore, representing a loss of over Rs 6,000 crore.

Among the major holders, ICICI Prudential Mutual Fund had the largest stake, valued at Rs 3,779 crore, followed by HDFC Mutual Fund at Rs 3,564 crore and SBI Mutual Fund at Rs 3,048 crore. Other significant stakeholders include UTI, Nippon India, Bandhan and Franklin Templeton Mutual Funds, with investments ranging between Rs 740 crore and Rs 2,447 crore.

Despite receiving mutual fund inflows worth Rs 10,200 crore between April 2024 and January 2025, IndusInd witnessed an outflow of approximately Rs 1,600 crore in February 2025. The steep 54 per cent decline from its April 2024 peak of Rs 1,576 per share has left investors grappling with mounting losses.

The 2.4 per cent impact on net worth could potentially translate to a profit reduction of around Rs 1,500 crore in the fourth quarter of FY25, according to a Moneycontrol report.

While the financial loss itself appears relatively contained, the bank has to focus on recovering its credibility now. To address this, IndusInd has enlisted an independent external agency to review and validate its internal findings.

The bank has been grappling with a series of negative developments lately, which have collectively contributed to the erosion of investor trust. These include stress in its microfinance institution (MFI) portfolio, the sudden resignation of the chief financial officer (CFO), the Reserve Bank of India cutting short the CEO’s tenure to just one year and this latest earnings hit due to the discrepancies in its derivative accounts.

Brokerages have been quick to react too, with Nuvama Institutional Equities downgrading the stock to a ‘reduce’ and revising the target price to Rs 750. The brokerage emphasized that negative derivative disclosures are more likely to unnerve investors than even backdated non-performing loan (NPL) disclosures.

This episode has also reignited debates about the inherent vulnerabilities in the banking sector. Banks often operate with highly leveraged positions, amplifying gains during profitable periods but also magnifying losses when crises strike. Devina Mehra, founder and CMD of First Global, took to social media platform X (formerly Twitter) to voice her concerns about the structural risks inherent in banking.

Citing past failures like the collapse of Barings Bank in 1995 due to unauthorized derivatives trading and the downfall of Silicon Valley Bank (SVB) in 2023 due to bond portfolio mismanagement, Mehra warned that banking risks often extend beyond conventional lending. She argued that investors need to remain cautious, as unforeseen shocks can erode confidence overnight.

Despite the gloom, some analysts suggest that improving financial metrics, particularly in asset quality within the microfinance portfolio, could eventually help the bank recover its lost ground. Additionally, steady deposit growth and sufficient liquidity might help reposition this crisis as a one-off incident rather than a lasting blemish.

Kotak, in its latest note, urged caution against further negative developments, stressing the importance of the board’s proactive response to the crisis. The report underscored that rebuilding investor confidence will require more than just financial rectifications — it will demand consistent performance and transparent communication.

The road to recovery for IndusInd Bank remains challenging, with the possibility of reporting a loss in Q4 FY25 looming large. Analysts predict that this could hit overall earnings by up to 25 per cent. While the bank has taken measures to address discrepancies, the enduring challenge will be restoring trust among investors, which remains its most valuable yet fragile asset.