India Ratings Maintains Negative Outlook on IndusInd Bank Despite AA+ Rating Affirmation

Context:

India Ratings and Research (Ind-Ra) has affirmed an AA+ rating on IndusInd Bank’s debt instruments while removing them from Rating Watch with Negative Implications. However, the outlook remains “Negative”, reflecting persistent concerns over the bank’s internal controls and financial reporting irregularities.

Key Reasons Behind Negative Outlook

• Accounting Irregularities
  • ₹4,920 crore discrepancies in derivatives accounts reported in FY25.
  • Disclosed on March 20, 2025; triggered a temporary “Rating Watch with Negative Implications.”
• Governance and Internal Control Weaknesses
  • Raises red flags on internal risk management and corporate governance.
  • India Ratings sees vulnerability in franchise stability despite remedial steps.
• Liquidity and Provisions
  • Bank created ₹62,000 crore in liquidity by winding down its corporate book.
  • Entire ₹1,325 crore contingent provision buffer was utilized in Q4FY25.
• Profitability Under Pressure
  • RoA expected to fall from avg. 1.8% (FY23–24) to ~1.0% in FY25.
  • Cost-to-income ratio worsened from 47.1% (FY24) to 60% (FY25).
  • High Opex due to retail expansion and provisioning needs.
• Strategic Uncertainty
  • Potential leadership change could recalibrate strategy on loan growth, asset mix, and liability management.
  • May impact credit quality, margin profile, and long-term profitability.

BS