This morning, over 640,000 shareholders of IndusInd Bank were shocked to see their shares drop by 22%. The bank revealed that it made a big mistake in its accounting, reporting an error of about ₹1,577 crore (which is a lot of money) in its foreign exchange derivatives. This problem will affect the bank’s overall value by about 2.35% as of December 2024. Shareholders are worried because this mistake will show up in their earnings for the fourth quarter.
What Went Wrong?
In a review of its accounts related to foreign currency transactions over the past 7 to 8 years, IndusInd Bank found some mix-ups. While they seemed to show accurate data externally (with outside parties), what they kept inside had a different approach. This led to them mistakenly reporting higher profits.
Since April 2024, IndusInd Bank has stopped these internal hedging transactions. They discovered the accounting error in September 2024 and have let the Reserve Bank of India (RBI) know about it. They are also conducting an outside audit to figure out exactly what happened. They explained the situation to analysts but didn’t share it during their last earnings call.
Why Did Shares Fall So Much?
The news caused IndusInd Bank’s shares to plunge to ₹702.60, knocking around ₹15,000 crore off its market value. Many financial experts downgraded the stock and lowered their suggested prices for it.
While the financial damage might not be as significant, investors are worried about the trustworthiness of the bank. Many believe it will take time to rebuild trust and make the stock worth investing in again. Analysts are concerned about the bank’s management, especially since there are worries about how this mistake went unnoticed for so long.
Various questions remain unanswered, such as why this wasn’t caught earlier and why auditors did not see any issues. Because of this, the value of the bank’s book (its total assets minus its liabilities) is now in question.
IndusInd Bank investors are left wondering if this is the end of bad news or if there could be more trouble ahead.
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