There will be lingering uncertainty over the next 2-3 quarters over more skeletons in IndusInd Bank’s (IIB) closet and management continuity, according to CLSA.
The aforementioned observation comes in the backdrop of RBI granting only a year’s extension for the MD (versus three years recommended by the Bank’s board) followed by disclosure of a net worth hit of about ₹1,500 crore due to an accounting gap.
CLSA analysts, in a report “What next?” said: “If a PSU banker is appointed, there would be even more negative sentiment for the stock. Also, the potential invoking of the promoter’s stock pledge by its lenders would add to the uncertainty.
“But, over time, we believe its fundamentals will take over. If IIB delivers numbers broadly in line with expectations over the next 4-6 quarters, we believe concerns will subside.”
Are there any positives?
The analysts underscored that there are two fundamental positives in the near term — a recovery in microfinance and respite for margins from better banking system liquidity, and rate cuts.
Further, a non-fundamental positive could be the promoter getting RBI approval to increase its stake in the bank (after its acquisition of Reliance Capital is completed). Any stake
purchase by the promoter will definitely boost investor confidence.
The analysts observed that while the RBI has been quite active over the past two years in identifying and rectifying flaws/deficiencies in lenders, there were no red flags raised publicly.
“The recent accounting discrepancy was not reported by either the bank’s auditors or the RBI over the past 5-7 years.
“However, the RBI cut the MD’s tenure to one year. The reason may not necessarily be asset quality, but there could be other factors,” they said.
