The crisis at IndusInd, India’s fifth-largest private bank

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Good morning. Lots of good news this week on the economic front. Inflation is cooling off, industrial output is picking up. Do all signs point to another interest rate cut in April? We’ll see.

In today’s newsletter, lots of space for SpaceX in India, with both Bharti Airtel and Reliance Jio announcing partnership agreements for Starlink. But first, the crisis in India’s fifth-largest private bank — IndusInd.

Here’s wishing you all the colours and sweets (and everything else) that make a perfect Holi, and the luxury of a long weekend to recover from the festivities!

The upheaval at IndusInd

What is going on at IndusInd Bank? Last Friday the lender said that the Reserve Bank of India had approved the extension of the tenure of its chief executive, Sumant Kathpalia. But the period of extension was only one year, as opposed to the three-year tenures typically approved by the central bank. This was the first red flag. In a call with analysts on Monday, Kathpalia suggested this was because the RBI was “not comfortable” with his leadership style.

The second red flag happened on Monday, when IndusInd announced it had noticed a discrepancy worth an estimated Rs16bn ($184mn) — or 2.35 per cent of its net worth — in its derivatives portfolio. These transactions go back nearly eight years, during which the bank has been using its internal desks and low-liquidity currency instruments to hedge against its foreign currency borrowing and deposits, as opposed to the industry practice of hedging with external counterparties. This came to light only in September 2023, after an RBI circular prompted the bank to review its portfolios.

The bank’s stock has tanked. It lost 27 per cent on Tuesday, recording its biggest single day loss, and yesterday the stock fell 1.84 per cent to close at Rs672.10.

Since then, the bank has appointed an external agency to independently review and validate the findings of its internal committee. Ashok Hinduja, who chairs the company that promotes the bank, has backed Kathpalia, telling local media that IndusInd’s balance sheet is strong and that it will report a profit for the quarter even after the necessary write-offs.

But the stock market is not fully convinced. Several fund houses have cut their target on the stock. In the past two years, foreign investors have reduced their holdings in the bank to 25 per cent (from 43 per cent), and domestic mutual funds have increased theirs from 16 per cent to 30 per cent, which makes a significant chunk of retail money vulnerable.

Many questions remain unanswered. If the bank discovered the discrepancies in September 2023, and unwound them by April last year according to media reports, why was it not disclosed earlier? Did the RBI have to step in because the bank delayed provisioning for these losses by over a year? If these discrepancies relate to transactions and practices that were followed from before Kathpalia’s term, why is the RBI circumspect about his leadership style?

These questions are no doubt stoking speculation among investors that they may need to brace for more revelations. Meanwhile, people in the RBI with knowledge of the matter have told me that an industry-wide check has now been set into motion, and all banks have been asked to report their derivatives positions. If other banks, too, report discrepancies, it will have a significant cascading effect for the sector and the stock markets.

Are you worried that there is more downside on the IndusInd stock? Write to us at indiabrief@ft.com.

Starlink gets a toehold

Starlink and Jio logos — Starlink has signed agreements with Ambani’s Jio and Mittal’s Airtel © Reuters

Starlink’s years-long wait to enter India may have finally ended, and all it took, apparently, was a meeting between Prime Minister Narendra Modi and Elon Musk.

After months of opposing Starlink’s entry into India, Bharti Airtel and Reliance Jio have both signed up with Musk’s SpaceX to distribute the company’s satellite internet service in India. On Tuesday, Airtel informed the stock exchanges that it had signed a deal with SpaceX, and it looked like the company had managed to sneak the agreement right under its local rival’s nose. But on Wednesday morning, Jio announced its own deal, prompting much head-scratching about what the game here was.

The media statements released by the two Indian rivals specify that the agreement is subject to SpaceX receiving government authorisation to sell Starlink in India. Earlier, communications minister Jyotiraditya Scindia had said clearance would be given only after all security concerns were addressed, and that the decision was awaiting clearance from the telecoms regulator.

But Modi’s meeting with Trump “First Buddy” Musk in Washington last month seems to have resulted in this new structure, where Sunil Mittal’s Airtel and Mukesh Ambani’s Jio are Starlink’s partners instead of competitors. With two of India’s biggest business houses as partners, it is safe to say that regulatory clearances will soon follow.

I’m not sure what Airtel and Jio stand to gain. While Starlink’s services will bring internet access to remote parts of India, India’s telecoms providers have already established wide coverage. But for Musk, the potential entry into India is a piece of good news at a time when his businesses are facing setbacks elsewhere. Last week, SpaceX’s Starship rocket exploded for the second time in as many months, while Tesla’s stock is now trading 48 per cent below its December highs. One thing is certain: in this clash of multibillionaires, Musk has emerged the winner.

What do you think of Starlink’s entry to India? Will it be a game-changer? Hit reply or write to me at indiabrief@ft.com.

Go figure

India’s inflation rate seems to be cooling. February’s data shows a seven-month low. Does this mean another interest rate cut in April?

Read, hear, watch

I have been on flights for a large part of the last fortnight and have come to the conclusion that Nordic murder mysteries perfectly mirror my onboard misery. This time around, I watched The Åre Murders. (My neighbour’s strategy, I noticed, was to watch the action comedy Yamla Pagla Deewana, and belly laugh his way through it. Twice!)

(Handing over this next recommendation to my editor Tee, who is watching far more interesting things than I am.)

I was dragged by a group of friends to watch Mickey 17, starring an American-accented Robert Pattinson. As a philistine when it comes to films, I went in not knowing that the director was Bong Joon-ho of Parasite fame. Perhaps due to my ignorance, I found the film an effective piece of satire that poked fun at its own genre, and pointed out the inherent absurdities of fascism without taking itself too seriously. But I can see why others looking for something more sophisticated (including the FT’s film critic) might disagree. — Tee

Buzzer round

What is Saudi Arabia investing $40bn to create? It’s an industry it projects will employ 39,000 people by 2030.

Send your answer to indiabrief@ft.com and check Tuesday’s newsletter to see if you were the first one to get it right.

Quick answer

On Tuesday, we asked: What should be the price to pay for an offensive joke? This is what you said. I am glad to see that 63 per cent of you agree with me that a bad joke should cost nothing more than an eye roll and a groan.

(Several of you have shared your thoughts about this issue. I will get around to replying to my emails this weekend. Apologies for the delay.)