IndusInd Bank’s 27% Plunge Drags LIC Down by ₹900 Crore

Shares of IndusInd Bank suffered a steep decline on Tuesday, March 11, plunging by 27% and hitting their lowest level since November 2020. This sharp drop came after the private sector lender disclosed accounting discrepancies in its derivatives portfolio, which are expected to have a one-time adverse impact on its earnings.

The significant downturn in IndusInd Bank’s stock has dealt a severe blow to Life Insurance Corporation of India (LIC), the country’s largest life insurer and a major domestic institutional investor. LIC’s portfolio reportedly took a hit of over ₹900 crore as a result of the stock’s sharp decline.

The bank’s revelation about the discrepancies in its derivatives accounting triggered a wave of investor concern, leading to heavy selling pressure and a sharp correction in the stock price. Market participants reacted swiftly to the news, reflecting broader worries about the bank’s financial health and governance practices.

IndusInd Bank’s 27% crash marked one of the steepest single-day declines for the lender in recent years, underscoring the sensitivity of financial markets to internal accounting issues. For LIC, which holds a significant stake in the bank, the slump translated into a substantial erosion of investment value, highlighting the potential risks faced by institutional investors when such corporate disclosures emerge.

The steep decline and the underlying reasons behind it have raised fresh concerns among market observers about the overall stability of IndusInd Bank’s financial reporting and internal controls. The full extent of the impact on the bank’s earnings and investor confidence remains to be seen as the situation develops.

During an internal review of its financial processes, IndusInd Bank uncovered discrepancies in the balances of certain asset and liability accounts linked to its derivatives portfolio. This review was initiated as part of the bank’s efforts to align its operations with the Reserve Bank of India’s (RBI) new regulatory framework, which came into effect on April 1, 2024.

The bank’s examination focused specifically on how these asset and liability accounts were being managed within the derivatives segment. Through this process, the bank identified inconsistencies in the reported figures, suggesting that the account balances may not have been accurately reflected. These discrepancies have raised concerns about the accuracy of the bank’s financial reporting in this area and could have broader implications for its earnings and overall financial health.

IndusInd Bank’s findings underscore the complexity of complying with the RBI’s updated regulations, which have introduced more stringent standards for financial reporting and risk management. The bank has indicated that these discrepancies are likely to result in a one-time impact on its financial performance, though it has not yet provided detailed guidance on the potential scale of the adjustment.

The discovery of these irregularities has prompted the bank to take corrective measures to address the issues and ensure full compliance with the revised regulatory requirements. The bank has also assured stakeholders that it is working to strengthen its internal controls and financial reporting practices to prevent similar issues from arising in the future.

IndusInd Bank’s internal review has revealed that the recently identified discrepancies in its derivatives portfolio are expected to have a significant financial impact. The bank estimates that the negative effect will amount to approximately 2.35% of its net worth. According to projections by ICICI Securities, this translates to a post-tax loss in the range of ₹2,000 crore to ₹2,100 crore in absolute terms.

The financial setback is expected to be reflected in the bank’s profit and loss statement (P&L) for the fourth quarter of the 2025 financial year (Q4FY25). This could lead to a substantial reduction in reported profitability for the quarter, with the possibility that the bank may even post a net loss. Such a development would mark a significant hit to the bank’s financial performance and could weigh on investor sentiment.

IndusInd Bank’s stock has already been under considerable pressure over the past year. The share price has declined by more than 55% over the last 12 months, making it one of the worst-performing stocks in the Nifty 50 index. The recent sharp decline, triggered by the announcement of accounting discrepancies, has added to the bank’s challenges.

Beyond the immediate financial impact, IndusInd Bank is grappling with broader operational and governance issues. Its operating performance has shown signs of weakness, raising concerns about the bank’s ability to sustain growth and profitability. Additionally, the uncertainty surrounding the leadership structure has added to investor unease. The bank’s Managing Director (MD) was recently granted only a one-year extension by the Reserve Bank of India, despite the board’s recommendation for a standard three-year term. This shorter tenure has sparked speculation about regulatory confidence in the bank’s leadership and strategic direction.

The combination of financial headwinds, governance challenges, and weakened stock performance underscores the difficult environment IndusInd Bank currently faces. The bank will need to navigate these issues carefully to restore confidence among investors and stakeholders.

The recent sharp decline in IndusInd Bank’s share price has triggered a wave of downgrades from major brokerage firms, reflecting growing concerns about the bank’s financial stability and governance issues. According to a Reuters report, several brokerages have lowered their target prices for the stock following the announcement of accounting discrepancies in the bank’s derivatives portfolio. Out of the 38 analysts currently covering IndusInd Bank, four have issued a “sell” rating — the highest number of negative ratings the stock has received in at least two years, based on data from LSEG. Despite this negative sentiment, the majority of analysts still maintain a “buy” rating on the stock.

The selloff in IndusInd Bank’s shares has also impacted Life Insurance Corporation of India (LIC), which holds a significant 5.23% stake in the bank. The sharp drop in the bank’s share price has led to a steep decline in the value of LIC’s holdings.

Before the selloff, LIC’s stake in IndusInd Bank was valued at ₹3,398.61 crore as of Monday’s close. However, after the stock price tumbled to ₹655.95 per share — the lowest level in nearly five years — the value of LIC’s holding fell to ₹2,475.33 crore. This represents a loss of approximately ₹923.24 crore for the insurance giant in a single trading session.

The significant drop in LIC’s investment value underscores the broader impact of IndusInd Bank’s financial and governance challenges on its institutional investors. The accounting discrepancies and the resulting financial uncertainty have not only affected the bank’s market performance but have also eroded confidence among key stakeholders. The fallout from this situation may continue to weigh on the bank’s stock performance and investor sentiment in the near term.

The sharp decline in IndusInd Bank’s share price has not only affected Life Insurance Corporation of India (LIC) but has also impacted several prominent mutual fund houses that hold significant stakes in the bank. Apart from LIC’s substantial holding, leading asset management companies such as Kotak Mutual Fund, ICICI Prudential Mutual Fund, UTI Mutual Fund, and Franklin India are also invested in the private sector lender.

As a constituent of the Nifty 50 index, IndusInd Bank has attracted considerable institutional interest over the years due to its position in the banking sector. However, the recent financial and governance setbacks have put pressure on the bank’s stock, leading to a significant erosion in the value of these institutional holdings.

Mutual funds typically maintain a diversified portfolio to manage risk, but the sharp and sudden decline in IndusInd Bank’s stock price has likely affected the overall performance of the funds holding a sizable position in the bank. The accounting discrepancies disclosed by the bank have raised concerns among market participants, prompting a reassessment of the bank’s financial health and future earnings potential.

The involvement of major mutual fund houses in IndusInd Bank reflects the broader market significance of the lender. The ongoing financial challenges and their impact on the bank’s stock price could influence fund managers’ future strategies and portfolio decisions. The extent to which these institutional investors adjust their holdings in response to the current situation remains to be seen.