MUMBAI (Reuters) -Shares of India’s IndusInd Bank dropped on Wednesday after the bank’s CEO resigned, taking “moral responsibility” for recent derivatives accounting lapses, but the losses were capped by expectations that a new management team would soon be in place.
The stock of the country’s fifth-largest private lender fell 3% at the opening bell, before paring some losses to trade 2.5% lower as of 11 a.m. IST.
Late on Tuesday, IndusInd CEO, Sumant Kathpalia, resigned, a day after his deputy also stepped down, in the aftermath of the derivative accounting lapses that came to light on March 10.
An external review panel estimated the bank would have to take a $230 million hit to its profit. The report has not been made public.
Since the lapses were disclosed, IndusInd shares have fallen nearly 8% and led to 11 of the 36 analysts covering the stock lowering their rating, per LSEG data.
Until a new CEO is appointed, a committee under the oversight of the bank’s board will oversee daily operations. This committee is a “temporary measure” and a CEO will be named soon, said a source familiar with the central bank’s thinking.
The source declined to be identified as the discussions are confidential. The central bank, also the country’s financial regulator, did not reply to an email seeking comment.
The appointment of a CEO is essential for a re-rating of the bank, Macquarie analysts said in a note.
A credible management change can benefit the bank and investors, brokerage Jefferies said in a note, adding the floor for the stock price “may not be too far.”
Analysts’ median 12-month price target on the stock is 855 rupees, which implies a roughly 5% upside to the current price of about 815 rupees, according to LSEG data.
The average rating of these 36 analysts is to “hold” the stock, compared with ‘buy’ before the lapses were disclosed, per LSEG data.
(Reporting by Siddhi Nayak and Ira Dugal; Editing by Rashmi Aich and Savio D’Souza)
