Detailed Rationale

Crisil Ratings has placed its 'Crisil AA+' rating on the long term debt instruments of IndusInd Bank Ltd (IndusInd) on ‘Rating Watch with Negative Implications’. Short-term rating has been reaffirmed at ‘Crisil A1+'.

 

The rating action follows the recent resignations of the top two key managerial personnel of the bank as well as the disclosure that the bank’s internal audit department is conducting a review of the microfinance (MFI) business to examine certain concerns, which have been brought to its attention during finalisation of accounts. Earlier on March 10, 2025, the bank had disclosed discrepancy in accounting of derivatives. These developments will necessitate the bank to take measures to strengthen its internal financial controls which will be a key rating monitorable. Further, the induction of new senior management personnel and stability of other key managerial personnel will also be monitorable.

 

On the issue of derivatives accounting, the findings of the external agency as well as the Board-appointed independent professional firm had determined the cumulative adverse accounting impact on the profit and loss account at Rs 1979 crore and Rs 1959.98 crore, respectively. The Board-appointed firm’s report identified the accounting impact of internal derivative trades, especially in case of early termination, which resulted in recording of notional profits, as the root cause for accounting discrepancy. The net impact (post tax) was similar to the initial estimated impact by the bank management. Crisil Ratings had earlier estimated that the bank’s capital adequacy and annualised pre-provisioning profitability could absorb this impact.

 

However, with reference to the MFI business, clarity is awaited on the nature of concerns raised and its potential impact on the business operations and/or profitability. The MFI loan book of the bank, accounting for ~9% of the total advances as on December 31, 2024, had decreased by ~16% during the first nine months of fiscal 2025 in line with industry trends. The gross non-performing assets (NPAs) of the MFI business had increased to 7.05% as on December 31, 2024, as against 4.53% as on March 31, 2024. Given the stress in the MFI sector, credit costs are expected to remain elevated in the last quarter and loan book growth is expected to be muted in the near-term. Any additional impact on the profit and loss account due to the audit review will remain a key monitorable.

 

With respect to the key managerial personnel, on April 29, 2025, Mr Sumant Kathpalia, managing director & chief executive officer (CEO) and on April 28, 2025, Mr Arun Khurana, whole-time director (executive director) and deputy CEO, resigned with immediate effect taking moral responsibility for the derivatives accounting issue. Earlier, on April 26, 2025, the bank had disclosed that the Board is taking necessary steps to fix accountability of the persons responsible for these lapses and re-align roles and responsibilities of senior management. Any further senior management changes will also be a key monitorable.

 

Crisil Ratings notes that, for an interim period until a permanent CEO is appointed by the bank, the bank has received approval from the Reserve Bank of India (RBI) to constitute a Committee of Executives, to discharge the duties, roles and responsibilities of the CEO of the bank. Further, the Committee of Executives will comprise two existing senior executives of the bank, Mr Soumitra Sen (Head – Consumer Banking) and Mr Anil Rao (chief administrative officer) as members, thereby ensuring continuity in business operations. The Committee of Executives will oversee the operations of the bank under the oversight and guidance of an oversight committee of the board. The oversight committee shall be chaired by the chairman of the board and shall comprise the chairs of audit committee, the compensation and nomination & remuneration committee and the risk management committee, as members. Earlier on April 17, 2025, the board had elevated Mr Santosh Kumar, earlier chief accountant, as the deputy chief financial officer and special officer – finance & accounts of the bank.

 

Furthermore, Crisil Ratings understands from the bank that there has been no material outflow in overall deposits so far over the last two months. As on March 31, 2025, the bank had deposits of Rs 4.11 lakh crore and CASA (current account and saving account) ratio of 32.8% as against Rs 4.09 lakh crore and ~34.9%, respectively, as on December 31, 2024. However, there has been some outflow seen in deposits from retail and small business customers during this period. These deposits stood at ~Rs. 1.85 lakh crore as on March 31, 2025, as compared to ~Rs 1,89 lakh crore as on December 31, 2024. The bank has maintained excess liquidity to take care of any contingencies. The liquidity coverage ratio of the bank stood at ~ 136% as on March 31, 2025. Crisil Ratings shall continue to monitor the deposit profile of the bank over the near term.

 

Crisil Ratings will monitor and engage with the management to understand the progress with regard to steps taken towards strengthening internal financial controls and to ensure stability and continuity of operations.  Further, the impact on profitability and changes in deposit profile will be closely monitored. Crisil Ratings shall resolve the rating watch once there is clarity on the above aspects.

 

Crisil Ratings has also taken note of the statement released by RBI on March 15, 2025, stating that the bank is well-capitalised and its financial position remains satisfactory. This is also reflected through the bank maintaining a capital adequacy ratio of 16.46% and provision coverage ratio of 70.20% as on December 31, 2024, as per audited financials.

 

Crisil Ratings’ outstanding ratings on the debt instruments of the bank continue to reflect its healthy capitalisation levels with a high core equity ratio and comfortable pre-provisioning profitability. However, these strengths are partially offset by a modest resource profile and higher cost of deposits. Also, overall asset quality remains a key monitorable as there has been some increase in gross NPAs in recent quarters.

Analytical Approach

Crisil Ratings has evaluated the consolidated business and financial risk profiles of IndusInd.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation

Key Rating Drivers & Detailed Description

Strengths:

Healthy capitalisation

Capitalisation metrics of the bank continued to be healthy as reflected in CET1, and overall capital adequacy ratio (CAR) at 15.18% and 16.46%, respectively, as on December 31, 2024. Additionally, the networth of the bank stood healthy at Rs 65,102 crore with networth/ net NPA (NNPA) ratio of 27 times on the same date. Furthermore, Crisil Ratings has taken note of the outcome of the reports of the external agency as well as that of the independent professional firm on account of discrepancies in the derivatives portfolio of the bank. Crisil Ratings estimates indicate that the bank’s CAR (as on December 31, 2024), could get impacted by ~35 basis points (bps) as per the outcome of these reports. Nevertheless, going forward, the bank is expected to maintain healthy capitalisation.

 

Comfortable pre-provisioning profits

The pre-provisioning profits as a percentage of average assets remain comfortable, albeit moderated to 2.8% during the first nine months of fiscal 2025 from 3.3% in fiscal 2024, primarily on account of reduction in net interest margin and other income. While net interest margin has declined from 4.2% in fiscal 2024 to 4.0% during the first nine months of fiscal 2025, on account of an increase in the average cost of bank deposits by ~44 bps during the period, it continued to be healthy.

 

Further, provisioning costs increased to 1.2% during the first nine months of fiscal 2025 from 0.8% in fiscal 2024, mostly on account of the expansion in gross NPAs in the MFI business in line with challenges faced by the sector. As a result, the return on assets (RoA) moderated to 1.2% from 1.8% during the period. Crisil Ratings understands that RoA would be further impacted in fiscal 2025 on account of the discrepancies being identified for the bank’s derivatives portfolio and the potential impact on account of concerns raised on the bank’s MFI business. Furthermore, Crisil Ratings understand that this will have a one-time impact on profitability. Nevertheless, the bank’s ability to sustain comfortable profitability will remain key monitorable.

 

Weaknesses:

Asset quality remains monitorable

The overall gross NPAs of the bank increased marginally to 2.25% as on December 31, 2024, as compared to 1.92% as on March 31, 2024. As on December 31, 2024, corporate and commercial banking advances made up 46% of the bank’s total advances. Of the total corporate advances, nearly 79% comprised of borrowers with a credit rating of A- or higher. While the share of corporate borrowers having a credit rating of BBB+ and below has reduced gradually, it remained sizeable at ~21% as on December 31, 2024. Crisil Ratings’ analysis of the top exposures (as on December 31, 2024), comprising around 41% of the total large and mid-corporate loan book indicates that the gross NPA levels of this segment are likely to stay steady at the current levels in the near term. In the corporate segment, the bank has relatively higher exposure to non-banking finance companies (NBFCs) (other than housing finance companies [HFCs]), real estate developers, gems & jewellery segments, amongst others, while on the retail side, the bank has exposure to MFIs (accounts for ~9% of the total advances as on December 31, 2024) and vehicle finance (~25%), which are inherently vulnerable to any economic downturn.

 

In line with industry trends, the gross NPAs of the MFI business had increased to 7.05% as on December 31, 2024, as against 4.53% as on March 31, 2024. While some of the increase is attributed to the base effect given that MFI loan book has decreased by ~16% during the first nine months of fiscal 2025, however, in absolute terms as well, the gross NPAs of MFI business increased to Rs 2,432 crore as on December 31, 2024 from Rs 1,837 crore as on March 31, 2024. Nevertheless, the bank has maintained adequate provision coverage of 70% towards its gross NPAs. Given the stress in the MFI sector, the ability of the bank to control asset quality metrics in the segment as well as for overall loan book remains a key monitorable.

 

Moderate resource profile

The overall deposit of the bank stood stable at Rs 4.11 lakh crore as on March 31, 2025 as against Rs 4.09 lakh crore as on December 31, 2024 . As on March 31, 2025, CASA ratio stood at 32.8% as against 34.9%, as on December 31, 2024 (~38% as on March 31, 2024). The bank has seen some outflows in retail deposits and deposits from small business customers in the last quarter to ~Rs 1.85 lakh crore as on March 31, 2025, as compared to ~Rs 1.89 lakh crore as on December 31, 2024. Nevertheless, their share stood more or less stable at ~45% as on March 31, 2025, as against ~46% as on December 31, 2024 (~44% as on March 31, 2024).

 

The average cost of deposits of the bank has also increased to 6.59% during the first nine months of fiscal 2025 from 6.15% in fiscal 2024 and was higher than that of similar rated peers. Moreover, the reliance on bulk deposits continues to be high with top 25 depositors constituting 16.23% of total deposits as on March 31, 2025. Thus, the bank’s ability to sustain its retail deposit base and steadily optimise deposit rates shall also be monitorable. Also, any higher-than-expected outflows in deposits will also remain a key monitorable.

Liquidity: Strong

The bank's liquidity position is comfortable with liquidity coverage ratio at 136.2% as on March 31, 2025, as against the regulatory requirement of 100%. Furthermore, liquidity also benefits from access to systemic sources of funds such as the liquidity adjustment facility from RBI, and access to the call money. However, any higher-than-expected outflow of deposits will be a key monitorable.

Rating Sensitivity Factors

Upward factors

• Improvement in the resource profile with a higher share of retail deposits and lower cost of deposits in comparison to peers
• Continued growth momentum with asset quality metrics remaining comfortable and capital position continuing to be strong with CET1 ratio (including CCB) remaining above 13% on a sustained basis

 

Downward factors

• Higher-than-expected deterioration in asset quality and/ or earnings profile
• Decline in capital adequacy ratios (including CCB) with CET I remaining below 11% on a sustained basis
• Sustained outflow of deposits
• Any material impact on business continuity on account of changes in the senior management.

About the bank

IndusInd is a new-generation private-sector bank; it commenced operations in 1994. The bank has a pan-India presence, with around 6835 branches (including 3772 branches of BFIL) and 2993 automated teller machines (ATMs) as on December 31, 2024. It also has representative office in Dubai, Abu Dhabi and London. The bank has multilateral ties with other banks, ensuring access to more than 95,000 ATMs for its customers. It has four divisions: corporate and commercial banking, consumer banking, global markets group, and transaction banking.

Key Financial Indicators

As on / for the period ended	Unit	December 2024	March 2024	March 2023	March 2022
Total assets	Rs crore	549,499	515,094	457,837	401,967
Total income (net of interest expense)	Rs crore	22,966	30,012	25,765	22,346
Profit after tax	Rs crore	4,904	8,977	7,443	4,805
Gross NPA (standalone)	%	2.25	1.9	2.0	2.3
Overall capital adequacy ratio (standalone)	%	16.46	17.2	17.9	18.4
Return on assets	%	1.2*	1.9	1.7	1.3

*annualised

Any other information: Not Applicable