The share price of IndusInd Bank increased by 28% in a single month, while the banking stock has decreased by 14% year-to-date (YTD). Shares of IndusInd Bank have dropped 15% over the last three years and 45% in just one year.
Following the resignation of Sumant Kathpalia, the MD and CEO of the private lender, IndusInd Bank’s share price dropped by more than 3%. On the BSE, IndusInd Bank shares dropped as much as 3.21% to ₹810.40 per.
Amid ongoing investigations into irregularities in the accounting of its derivatives portfolio, private lender IndusInd firm said on Tuesday that Sumant Kathpalia has resigned as managing director and CEO of the firm with immediate effect.
“With regard to the continuing Derivatives discussion, I would like to tender my resignation from the Bank’s services. Given the numerous acts of commission and omission that have come to my attention, I accept moral responsibility,” Kathpalia stated in his letter of resignation.
Previously, the RBI had simply extended Kathpalia’s term as CEO of IndusInd Bank by one year. A three-year period was what the lender had requested.
Arun Khurana, the deputy chief executive officer of IndusInd Bank, resigned on April 28.
Committee of Executives approval from the RBI
In the meantime, IndusInd Bank declared that the Reserve Bank of India (RBI) has given it permission to form a “Committee of Executives” to carry out the tasks, responsibilities, and obligations of the bank’s CEO temporarily, until the bank appoints a permanent CEO.
In a regulatory filing on April 30, IndusInd Bank stated that the Board had established a “Committee of Executives” based on RBI approval to supervise the Bank’s operations under the supervision and direction of the Board’s Oversight Committee until a new MD&CEO takes over or three months after the incumbent MD&CEO is relieved, whichever comes first.
Emkay lowers the target and downgrades IndusInd Bank shares.
Emkay Global Financial Services, a brokerage firm, has reduced its ratings on IndusInd Bank because it thinks the recent wave of resignations, including the CEO, raises the possibility of yet another round of business disruption and could therefore take longer to recover from.
In addition to lowering the IndusInd Bank share price objective by 9.4% to ₹725 per share from ₹800 before, Emkay Global downgraded the bank’s shares from “Add” to “Reduce.”
Anand Dama, Senior Research Analyst at Emkay Global Financial Services Ltd., stated, “This is in light of the recent wave of top management resignations, including the MD & CEO, which should increase business/margin disruption including the risk of another round of deposit run-down, impact on asset quality, middle-management attrition, and the possibility of appointment of an RBI nominee on the Board as well as a PSU banker as MD & CEO (similar to Bandhan Bank or RBL Bank).”
Since the incumbent MD and CEO had promised a seamless management transfer and no more skeletons in the cabinet (latest MFI concerns being investigated pose new risk), the share price of IndusInd Bank had lately declined.
In contrast to some of its peers, Dama stated, “We understand that the Board has started the CEO/ED hiring process, which may take at least 3-6 months to seek RBI approval; therefore, business would be hit in the interim and the recovery process would be prolonged, making the risk-reward unappealing for IndusInd Bank at current levels.”
Prospects for the Share Price of IndusInd Bank
Top-level leadership changes, particularly in the midst of major financial setbacks, tend to raise concerns about strategic continuity and governance, according to Vishnu Kant Upadhyay, AVP-Research & Advisory, Master Capital Services.
However, the share price of IndusInd Bank has already discounted these leadership and financial challenges, so there is unlikely to be a significant sell-off in the near future. Long-term investors, however, might continue to monitor efforts at stabilization and succession planning for clarity,” Upadhyay added.
According to Upadhyay, if IndusInd Bank’s stock breaks through important support levels at ₹770 on the technical charts, it may invite more declines toward ₹712 and subsequently ₹640 levels.
“The ₹920 to 940 range will remain an immediate resistance on the higher side,” he continued.
The share price of IndusInd Bank increased by 28% in a single month, while the banking stock has decreased by 14% year-to-date (YTD). Shares of IndusInd Bank have dropped 15% over the last three years and 45% in just one year.
The share price of IndusInd Bank was down 2.74% at ₹814.35 a share on the BSE at 9:30 AM.
