Ashok Hinduja: Willing and ready to inject capital to calm investors after IndusInd Stock crashes

IndusInd Bank Promoter Pledges Support after ₹18,000 Crore Stock Plunge

IndusInd Bank, one of India's largest private lenders, found itself in a tizzy this week after a derivatives-related issue wiped out nearly ₹18,000 crore from its market capitalization on March 11th. In response, Ashok Hinduja, a key figure in the bank's promoter group, has stepped forward to reassure investors and pledge full support, even promising to inject capital if needed.

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The trouble started when IndusInd Bank revealed discrepancies in its derivatives portfolio, estimating a potential 2.35% hit to its net worth. This news, coupled with the Reserve Bank of India's (RBI) allowed one year extension instead of three years as requested for the re-appointment of the bank's Managing Director & CEO, Sumant Kathpalia. This sent the bank's stock price tumbling by a staggering 26%. Brokerages also downgraded the stock, adding fuel to the fire.

Hinduja urged shareholders not to panic. "These are normal routine problems," he said, emphasizing that banking businesses are built on "integrity and trust." He acknowledged investors' concerns about the delayed disclosure but pointed out that the issue was identified internally by the bank's management, not by external auditors or regulators. "This problem wasn't identified by anybody else... It was the management which came out and brought the issue to attention," he stated, praising the bank's transparency.

Hinduja expressed unwavering confidence in the bank's board and management, highlighting IndusInd Bank's 30-year history of overcoming challenges. "We have seen IndusInd Bank for the last 30 years. It has seen various problems. Those have been handled properly. This problem will also get resolved," he asserted, adding that the bank's financial numbers remain "very strong."

He further stated that the error and problems, happens to various banks globally.

The potential impact on the bank's profit could be around ₹1,500 crore, according to a person familiar with the matter, although the final figure may be higher pending an external review.

Crucially, Hinduja reiterated the promoters' commitment to increasing their stake in the bank, pending RBI approval. "As soon as we receive approval from the RBI, we will immediately inject capital into the bank as and when required," he said. He also clarified that, despite the current situation, the bank's capital adequacy remains strong.

The situation at IndusInd Bank highlights the inherent risks associated with complex financial instruments like derivatives. It also underscores the importance of strong internal controls and timely disclosure. Whether Hinduja's assurances and potential capital infusion will be enough to restore investor confidence: only time will tell. The coming weeks will be critical for IndusInd Bank as it works to address the discrepancies, complete the external review, and regain its footing.