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IndusInd Band Share News: Bank deputy CEO Arun Khurana said the discrepancies are not linked to...
Read More Why is IndusInd Bank share falling — the question that is on minds of millions of Indians as investors are caught off as shares hit a 52-week low. The shares of IndusInd Bank tanked 23 per cent in the morning trade on Tuesday, March 11, falling for the fifth straight day. The reason for fall explained: IndusInd Bank is grappling with a potential Rs 1,600-2,000 crore hit to its net worth, following an internal review of multi-year derivatives transactions — raising bigger questions about the opaque risks lurking inside banking balance sheets.
On March 10, warned about a 2.35 per cent decline in its net worth due to discrepancies in its derivative accounts. Thus, putting tremendous selling pressure on the shares of BSE Sensex company.
The net worth impact emerged from internal derivative trades, which were not in compliance with rules enforced by the Reserve Bank of India from April 2024, the Mumbai-based lender said. IndusInd CEO Sumant Kathpalia said on a conference call that the discrepancies in the derivatives book were identified by September-October. Reports quoted deputy CEO Arun Khurana as saying that the discrepancies are not linked to client accounts.
Khurana, however, did not disclose details on the nature of the inconsistencies. A report in Economic Times quoted experts as saying that the internal review discrepancies will damage the credibility of the bank, and act as a sledgehammer on the stock. In a note, analysts at Macquarie, global financial services company, said that the development “raises questions on internal processes".
On the other hands, Jefferies, an American multinational independent investment bank, said “it clearly reflects weak internal controls". Should Investors Be Wary Of Banking Stocks? Devina Mehra, Founder and CMD of First Global, said the shock was anything but surprising. Writing on LinkedIn, she explained why she calls herself a “nervous investor" when it comes to banks and lenders: “It is in the structure of the business where negative surprises will ALWAYS outweigh positive surprises.
" Addressing why she remains wary of banking stocks, Mehra wrote, “When banks lend and their customer does very well, unlike equity investors they do not get any extra income. In fact, on the margin they may well have to reduce interest rates. On the other hand, when something goes wrong with the borrower, the bank has to take a hit.
" Mehra further highlighted how bank growth itself can be deceptive. “This is one business where higher than expected growth may not be a good thing at all except that you come to know of the problems created only some years later, she noted. Founder of First Global, citing worldwide examples, reminded investors of the structural risks.
“Add to it, the risk of losses on highly leveraged trading/ investment positions (because a bank is inherently a leveraged institution) and this can deal a blow — sometimes a fatal one — to a bank. After all, a single trader took down the 200+ year old Barings Bank and a couple of years ago, the Silicon Valley Bank’s troubles also arose out of their bond book, rather than credit," Mehra wrote. Underlining the real challenge for investors, she further said, “It is at the end of the day, a highly leveraged precarious business.
More important, as an outside investor, you never know where the problems are hiding in either the credit or the trading book. So yes, हम तो डर डर कर ही निवेश करते हैं (loosely translate to — I am extremely cautious while investing).".
