IndusInd Bank’s Volatile Journey: From Rs. 1362 to Rs. 235 and Back to Rs. 400 in Three Months
IndusInd Bank, a prominent Indian private sector bank, has faced considerable volatility in its stock performance over the past few months, swinging drastically from Rs. 1362 to Rs. 235 and regaining Rs. 400. This unprecedented fluctuation in its stock price within a span of three months underscores the challenges the bank is currently facing as it navigates through a turbulent economic landscape.
The Economic Context
The yearly percentage change of IndusInd Bank is as staggering as -70%. This sharp decline is indicative of the larger economic challenges the bank is encountering. Recently, the bank reported its Q4 results for the fiscal year with a profit of Rs 301.84 Cr. Despite these figures, the bank's non-performing assets (NPAs) are on the rise, signaling growing concerns over the quality of its loan portfolio. The increase in NPAs by a significant margin, from 6755 crore in September 2018 to 9074 crore by December 2019, represents a 34.32% jump, reflecting the increased risk in its loan book.
Key Leadership and Strategic Shifts
The departure of Romesh Sobti, the bank's MD CEO since 2008, signals a new era for IndusInd. Sobti, during his 12-year tenure, has been instrumental in strategically building a strong retail franchise for the bank. His efforts diversified the bank's portfolio by focusing on small and medium enterprises (SMEs), providing a buffer against riskier corporate borrowers. His strategic move to merge with Bharat Financial Inclusion, the erstwhile SKS Microfinance, was a clever way to de-risk its loan book and cross-sell and grow its retail franchise.
Recent Challenges and Market Reaction
However, the bank's journey is not without challenges. The crisis at Infrastructure Leasing and Financial Services (ILFS) exposed IndusInd Bank to the risks associated with mounting NPA. In the subsequent six quarters, between September 2018 and December 2019, the gross NPAs increased from 6755 crore to 9074 crore – an alarming 2319 crore or 34.32%, indicating a significant deterioration in asset quality.
The Impact of the YES Bank Crisis
The recent YES Bank crisis has added another layer of complexity to IndusInd Bank’s challenges. Following the crisis, the bank experienced a significant run-down of deposits, with approximately 10-11% depletion. This was further exacerbated by withdrawals from state governments and corporates, reducing deposits by around 30%. These events led to a series of downratings and subsequent massive selloffs by its major foreign institutional investors (FIIs) in Europe.
Prediction and Future Outlook
The events of the past few months suggest that IndusInd Bank may face further challenges in the future. The current economic environment, characterized by declining asset quality and rising NPA, could result in significant financial losses. This could potentially damage the bank's image and make it susceptible to another financial crisis, similar to the one faced by Yes Bank.
In conclusion, IndusInd Bank's recent struggles reflect the broader economic context and the challenges faced by banks in India. The volatility in its stock price over the past three months serves as a warning and a call for strategic planning and robust risk management to navigate through these turbulent times.