Moody's Puts IndusInd Bank Under Scrutiny Amid Derivative Discrepancies

Moody's has placed IndusInd Bank's baseline credit assessment under review for potential downgrade due to a USD 175 million accounting discrepancy in its derivative accounts and stress in its retail loan portfolio. Despite concerns, Moody's maintains the bank's Ba1 ratings, citing strong capital and stable funding.

Moody's has initiated a review for a potential downgrade of IndusInd Bank's baseline credit assessment, following the bank's revelation of a USD 175 million accounting anomaly in its currency derivatives portfolio. The disclosure has raised concerns over the bank's internal controls, causing its shares to drop over 28% since the Reserve Bank of India extended CEO Sumant Kathpalia's term by one year.

The rating agency maintained the Ba1 long-term ratings of the bank while expressing apprehensions regarding the stress in the retail unsecured loan sector, which might impact the bank's profitability and capital. Moody's cited uncertainty around the bank's leadership changes and emphasized the need for resolving financial control and risk management issues.

Despite affirming the Ba1 ratings with a stable outlook, Moody's noted the challenges facing IndusInd Bank. The bank's non-performing loan ratio rose to 2.3% by December 2024. Nevertheless, Moody's remains confident about the bank's funding and liquidity stability, pointing to its strong domestic franchise and access to international funding as resilience factors.

(With inputs from agencies.)