Context:
IndusInd Bank raised a substantial ₹16,550 crore through the Certificate of Deposit (CD) market in March after disclosing discrepancies in its derivatives portfolio. The move was a response to a flight of deposits, signaling a significant shift in its fundraising strategy.
Details of Fundraising
- IndusInd Bank’s CD Issuances:
- March 10: Raised ₹1,890 crore by issuing 12-month CDs at a coupon rate of 7.75%.
- On the same day, the bank revealed discrepancies in its derivatives portfolio, which would reduce its net worth by 2.35%.
- To address these issues, the bank appointed an external agency for a review of the loss estimate and later decided to hire an independent firm to conduct a comprehensive investigation.
- Subsequent Week: The bank raised an additional ₹11,000 crore through CDs with coupon rates ranging from 7.8% to 7.9%, marking a 15 basis point increase compared to the previous week’s rates.
Reason for Increased Subscription
- Attractive Yields: The higher yields offered by IndusInd Bank (7.75% to 7.9%) compared to those of public-sector banks (which were in the range of 7.5% to 7.6%) created an opportunity for these banks to secure a favorable spread over their borrowing costs.
- A treasury official from a large public-sector bank noted that the higher rates made IndusInd Bank’s CDs particularly attractive.
Implications
- Investor Confidence: Despite the bank’s internal findings revealing discrepancies in its derivatives portfolio, the aggressive fundraising and high demand for its CDs suggest that investors, particularly public-sector banks, were not overly deterred due to the higher returns.
- Long-Term Impact: The ongoing investigation into the discrepancies will be critical in determining the long-term impact on IndusInd Bank’s reputation and financial stability.
