Bank shares plunge: Bank shares plunge 6%, more weakness likely

Mumbai: Shares of IndusInd Bank slumped as much as 6% during the session on Monday to their lowest level since July 2022 after the Reserve Bank of India extended its chief executive Sumant Kathpalia‘s tenure by one year as against three years proposed by the board. The stock could decline further on Tuesday after the private lender, post trading hours on Monday, said it expects a decline in its net worth on account of some discrepancies in its accounts found during an internal review.

The stock closed 3.7% lower at ₹902 on Monday.

“The news of the 2.35% impact on the bank’s net worth could add to the pressure on the stock, especially when sentiment is already weak on account of the the RBI’s decision to extend the current CEO’s tenure by only one year ,” said Yuvraj Choudhary, research analyst, Anand Rathi Institutional Equities. “His previous re-appointment in March 2023 was also for a reduced tenure of 2 years instead of the 3 years requested by the bank.”

In the past one month, the stock has plunged over 15% while Bank Nifty fell 3.53% in the same period.

ICICI Securities downgraded IndusInd Bank to ‘reduce’ from ‘buy’ and slashed the target price to ₹850 from ₹1,350.

“We believe this may lead to deliberation on how the regulator could be construing individual capability/suitability or governance of the institution, or both,” said analysts at ICICI Securities. “We see heightened uncertainty in near term on possible kitchen sinking, and probable names of MD & CEO candidate.”Analysts said continued concerns in the microfinance (MFI) segment are also expected to keep the stock under pressure in the near term. “Although the RBI has not provided any explanation for only a oneyear extension, we believe it is not satisfied with progress on the conditions set by it during the earlier term extension, amid other concerns including mismanagement of the microfinance (MFI) portfolio leading to higher NPAs (non-performing assets),” said Abhishek Pandya, Research Analyst, StoxBox.

He said IndusInd’s performance in recent quarters has been lowerthan-expected, characterized by a decline in net interest margins, slower loan growth, and deteriorating asset quality, particularly due to stress in the microfinance sector.

“These issues have contributed to a 40% drop in the bank’s stock price so far, this fiscal year. We expect the stock to remain at current levels, potentially declining by an additional 3-5% unless management provides more clarity,” said Pandya.

Brokerage Motilal Oswal said, post significant corrections due to muted performance in the past few quarters, the speculation regarding the MD’s term extension has contributed to further de-rating in the stock price.

Analysts advise against buying the stock for now. “Considering the RBI’s decision and the company’s recent quarterly performance, we recommend that investors wait for a few quarters before initiating a buy position,” said Pandya