Mumbai: Financial crisis and rising NPAs drive fall
IndusInd Bank shares on Friday witnessed a historic fall, its worst day in the last four years. The bank’s shares fell 21% to ₹1,034 per share, its 52-week low.
Main reasons for the fall
There are several factors responsible for this massive fall, prominently including poor financial performance and rising non-performing assets (NPAs).
Rising NPAs and poor loan management
The bank’s total gross NPAs rose to 2.11% as against 2.02% in the previous quarter.
Bad loans in the microfinance book rose to ₹2,259 crore, up from ₹1,988 crore in the previous quarter.
High rates of loan defaults have been recorded, especially in Bihar, Jharkhand and Maharashtra.
Huge decline in financial results
IndusInd Bank’s net profit stood at ₹1,325 crore, which is much lower than ₹2,181 crore in the same quarter last year.
The bank’s total provisions increased by 73% quarterly to ₹1,820 crore, which is 87% higher on a year-on-year basis.
The bank has set aside an additional provision amount of ₹1,525 crore, which has further increased investors’ concerns.
Market reaction and investor confidence shaken
Due to this decline in the stock market, IndusInd Bank’s stock has fallen 21% in the last 12 months and 31% so far in 2024.
The stock fell by 19.22% on the NSE and reached the lower circuit.
The Nifty 50 index was also affected by this decline and fell by 0.91%.
The trading volume of the stock was 69 times higher during the day, which shows that panic was spreading among investors.
Brokerage and analysts’ reaction
After this decline, many brokerage companies have reduced the target price of the bank’s stock.
According to Nuvama Institutional Equities, the stock may remain weak in the next few quarters given the pressure in the microfinance sector and the bank’s slow earnings rate.
However, according to Bloomberg data, 41 out of 50 analysts have recommended ‘buy’ this stock, while 8 have advised ‘hold’ and 1 has advised ‘sell’.
According to analysts, the 12-month average target price shows a potential upside of up to 40%.
Do investors need to panic?
The current situation of IndusInd Bank is worrying, but some experts are considering it a good opportunity for long-term investment. If the bank succeeds in controlling its NPAs and improving credit management, its stock may witness a recovery.
Investors are advised to consult their financial advisor and evaluate the market situation before investing.
