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IndusInd Bank in 'uncharted waters': ICICI Sec downgrades shares, cuts target priceA series of unfavourable developments at IndusInd Bank over the last few weeks, including a derivatives loss, and the sudden exits of the MD & CEO, deputy CEO, and CFO, appear to have already dented investor sentiment, brokerage firm ICICI Securities wrote in its note.By Meghna Sen   May 19, 2025, 12:43:02 PM IST (Published)3 Min ReadShares of Mumbai-based private lender IndusInd Bank Ltd. are trading flat in Monday's session. Brokerage firm ICICI Securities downgraded the lender on May 19 and also slashed its price target.

ICICI Securities cut its rating on IndusInd Bank to 'Sell' from 'Hold', citing an unfavourable risk-reward outlook. The brokerage also reduced its price target to ₹650 from ₹720, implying a potential downside of 17% from Friday’s closing price.

Inflated interest income on MFI book

ICICI Securities said IndusInd Bank is facing yet another challenge, as an internal probe has uncovered ₹674 crore of inflated interest income related to its microfinance (MFI) business. The inflated income is expected to have a recurring impact of 17 basis points on the bank’s net interest margin (NIM).

In an exchange filing, the lender has clarified on the reports pertaining to its MFI business.

IndusInd Bank said that, based on a report from its Internal Audit Department, a cumulative amount of ₹674 crore was incorrectly recorded as interest income over the first nine months of FY25 (9MFY25). This amount was fully reversed on January 10, 2025.

However, there is still no clarity on whether the ₹595 crore in unsubstantiated balances will have an impact on the bank's profit and loss statement.

Growth and profitability likely to lag

A series of unfavourable developments at IndusInd Bank over the last few weeks, including a derivatives loss, and the sudden exits of the MD & CEO, deputy CEO, and CFO, appear to have already dented investor sentiment, ICICI Securities wrote in its note.

The current outcome only adds to the uncertainties, and the brokerage believes it could further erode confidence in the bank’s reported financials.

ICICI Securities said it is inclined to believe that IndusInd Bank is in uncharted waters and expects it to deliver subpar growth and profitability over FY25–27E, with 8% CAGR and return on assets (RoA) of less than 1%.

IndusInd Bank's valuations, at 0.95 times its FY25 estimated book value and 0.85 times it FY27 adjusted book value, are not considered cheap given the current uncertainties.

The lender had recently shocked investors with the revelation of a ₹2,000 crore derivative loss.

Adding to the turmoil, both the MD & CEO and the Deputy CEO abruptly stepped down last month. The bank is currently being run by a committee of executives.

At present, the board also lacks a Whole-time Director, and the brokerage said it does not rule out the possibility of supervisory action.

Credit rating agencies have further downgraded IndusInd Bank’s rating and revised the outlook to negative.

Amid this string of setbacks, ICICI Securities believes IndusInd Bank has now found itself in uncharted waters.

Shares of IndusInd Bank have recovered nearly 30% from their 52-week low of ₹606, which they fell to when the first accounting issue came to light. The stock has fallen 19% so far in 2025.Continue ReadingNote To ReadersDisclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!TagsIndusInd BankIndusInd Bank share priceIndusInd Bank sharesshare market today