Promoter Hinduja backs IndusInd Bank’s MD, says lender’s balance sheet strong
Mumbai: Ashok Hinduja, chairman of IndusInd International Holdings Ltd (IIHL), the promoter of IndusInd Bank, expressed complete confidence in the ability of the bank’s managing director (MD) and chief executive officer Sumant Kathpalia to steer the bank through its challenges. Hinduja’s backing came on a day when IndusInd Bank’s stock dropped 27.17% to its 52-week low. In an interview with Mint, Hinduja pointed out that the bank’s net worth of ₹65,102 crore and other key metrics were adequate to absorb any setbacks arising from discrepancies of approximately ₹1,530 crore in the derivatives account balances. Edited excerpts:
Will the recent discrepancies flagged in the derivatives portfolio impact MD Sumant Kathpalia’s tenure?
RBI (Reserve Bank of India) has reappointed him for one year. He already clarified that he came to know there was an issue in October, and they have also appointed a third-party agency. So why will it be a problem for him? It’s a five-seven-year-old issue from when he was not heading the bank. In any case, nobody’s asked him to discontinue and RBI has given him the reappointment letter after knowing everything.
Also read | IndusInd Bank’s investors scream trust is not meant to be broken
What immediate steps are you planning to restore investor confidence?
I’m not a part of the day-to-day operations of the bank, nor am I on the board. I have told the market and investors that our full support is there, like it always has been in the past. In the business of banking, problems may arise for many a reason—technical or employee-led. Luckily, it is not a fraud; that part is clear.
The question of confidence is only because of the hit to the bank, but the balance sheet is strong. The bank has also guided that it will continue to report a profit in Q4FY25 after adjusting for all this. The net worth is around ₹65,000 crore and a hit of ₹1,500 crore is not very big. Then there is also the question of hiking the promoter stake to 26% from 15%. RBI has given us in-principle approval but there are procedures, so we’re awaiting the final approval now.
Could this uncertainty impact RBI’s decision to allow for the hike in promoter stake?
No, why? Even after all this, the capital adequacy is still 15.5%, which is much more than the required 12.5-13%. If foreign capital is coming to the bank, it will make the bank stronger.
I’ve extended my full support, trust and confidence in the MD and to the board. I’ve also said that this is not a big thing. Global banks have these problems in treasuries and derivatives, and at times errors or glitches can happen. These things happen, but one should not panic. What I saw today was that investors were panicked. They should not panic. The balance sheet is strong and this hit will not make a big difference. So, it’s only a question of confidence and that’s why I have given this clarity.
Also read | IndusInd Bank flags lapses worth ₹1,530 crore in derivatives portfolio
But 51% of the promoter stake is pledged?
The pledge is because being a holding company, we have to acquire more businesses to create more things. IndusInd International Holdings Ltd (IIHL) has acquired a bank in the Bahamas, and we have invested in an exchange called Afrinex in Mauritius. So, we have other businesses and funds were raised immediately when they were required. Additionally, IIHL went in for a buyback of shares from some of the investors who wanted to exit.
Could the lenders now demand more shares to be pledged?
As of now, we have no further pledge, and any margin call that comes in, IIHL will make the payment. As of now, there is no need for a further pledge.
Are you worried about succession planning because you may have to look for a new MD in a year?
Kathpalia has already said that he will continue to grow the institution, and he has shown a good turnaround. Since he came in 2020, he has seen a lot of crises, but he has cleaned up the books. Then, he faced the problems of microfinance and commercial vehicles. He put in place the provisioning and did the work, and now microfinance is doing well, owing to regulatory guidelines from RBI.
Also read | IndusInd Bank faces a 2.35% net-worth erosion. What does it mean?
As far as looking for a new person is concerned, the bank will start their exercise and provide two-three names. Maybe Kathpalia’s name will also go along with others, and if he’s still doing a good job in six-eight months, maybe RBI would like him to continue.
Will this impact the takeover of Reliance Capital?
No, because IIHL is a separate entity. The first transaction for the domestic equity component for ₹3,250 crore was concluded yesterday (Monday. About ₹2,500 crore has already been deposited towards the overseas 74% equity component. Balance ₹4,300 crore for the remaining stake in the domestic company is also under process and hopefully by the weekend, the transaction should go through.
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