IndusInd Bank Ltd’s shares dropped to their lowest in nearly three years after the Reserve Bank of India cut the lender’s proposed three-year extension for managing director and chief executive officer Sumant Kathpalia to one year.
This isn’t the first time RBI has disagreed with banks on the tenure of their top chief.
In 2023, the regulator approved a two-year extension for Kathpalia whereas IndusInd Bank’s board had approved his reappointment for three years. In 2021, the regulator allowed a year’s extension for RBL Bank Ltd’s MD and CEO Vishwavir Ahuja as against the board’s approval of his reappointment for three years.
Ahuja had led RBL Bank for more than a decade at the time. Kathpalia has been with IndusInd for more than a decade, and in the CEO position for five years.
“Given RBI’s preference for an external CEO in case of recent appointments, the odds of an external CEO at IndusInd after Mr. Kathpalia (exits) are high,” said analysts from Nuvama Research. “Should this happen, near-term earnings visibility—already impacted by a weak MFI (microfinance institutions) cycle—will become lower.”
At 1.24pm on Monday, IndusInd Bank shares were down 3.33% at ₹905.50 each after having dropped to ₹881.10 earlier in the day, which the benchmark indices Nifty 50 and Sensex were slightly higher than Friday’s close.
Also read | IndusInd Bank: A crucial crossroads amid leadership continuity and financial headwinds
Steadying the ship
IndusInd Bank’s performance has been noteworthy under Kathpalia, who took over as MD and CEO during the initial covid curfews in March 2020. He had to deal with asset quality concerns and governance issues related to the bank’s lending practices, which included the evergreening of loans.
Since then, Kathpalia has focused on strengthening IndusInd Bank’s retail banking segment, improving asset quality, and navigating regulatory challenges.
IndusInd Bank’s total assets jumped from ₹3.07 trillion in FY20 to ₹5.15 trillion in FY24—a compound annual growth rate of about 14%. Net profit more than doubled from ₹4,418 crore to ₹8,977 crore in that period.
In the first nine months of FY25 (April-December 2024), IndusInd Bank’s total assets grew 12% year-on-year, but net profit fell 26% as its provisioning for non-performing assets (NPAs), or bad loans, spiked.
In choppy segments
IndusInd Bank’s shares have fallen sharply by 40% over the past year, making the stock’s valuation undemanding given its price-to-book value of 0.92 times its FY26 estimates, as per Bloomberg consensus.
But valuation alone is not enough. The bank needs to show earnings growth to regain investor interest.
During IndusInd Bank’s third-quarter earnings call, Kathpalia emphasized that the bank was shifting its focus to more secured lending.
About 40% of the bank’s loan portfolio is in vehicle finance, microfinance, credit cards and personal loans—segments that are facing challenging business conditions at a macro level.
Over the past three years, IndusInd Bank has consistently reduced the share of microfinance lending in its overall portfolio—from 13-14% to 9%—thanks to a combination of repayments and curtailed incremental lending.
In February, RBI lowered the risk weights for bank credit to the microfinance segment to 100% from 125%, which should help in releasing capital for banks.