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He also spoke about promoter commitment, regulatory approvals for stake expansion, pledged shares, and leadership succession.
These are the edited excerpts of the interview.
Q: I would like to start by getting your reaction to the CEO getting that one-year extension, closely followed by the disclosure of this issue regarding discrepancies in the derivative portfolio, nearly six months after the management discovered it. The Street is calling this a credibility issue. What do you, as a promoter, make of this? Were you aware of the issue from the beginning?
A: Let me tell you, the banking business involves lending and borrowing. Globally, banks at various times face problems—often much bigger, five or six times the size of this bank. They have seen these problems. As you rightly asked whether I was aware—yes, I am aware, but only now.
Because I am not on the board, nor am I part of the management, it would be very difficult for me to answer why they came to know when they did, why they did not correct it earlier, and why it was not informed sooner. However, I can tell you that our trust and confidence in the board and the management remain very strong.
Over the last 30 years, IndusInd Bank has faced various problems, all of which have been handled properly by the board, the MD, and the management. This problem will also get resolved because, as we see, their financial numbers remain very strong. The operating profit for the past nine months is over ₹11,000 crore. The hit of ₹1,600 crore is not significant. These are derivative-related technical difficulties, as we understand, so they will be able to manage it. My suggestion and request to the shareholders is not to panic. These are normal, routine problems.
Also Read | What’s gone wrong at IndusInd Bank? Crisis timeline and Street view
However, I understand their concern—why was this not disclosed earlier? It comes down to the intention and integrity of the institution. Banking is built on integrity, trust, and faith. I am sure there were some difficulties or challenges, which only the MD can address. But there is nothing fundamentally wrong with the system or management.
Some professional or individual may have made a technical error, which we are not aware of. As far as the promoters are concerned, we have full trust in the institution, and our support will always be there.
Q: You said you support the management and the CEO, and you believe the financial hit is not very large. However, the Street is particularly concerned about credibility. As you yourself mentioned, this is not the first issue. Before this, the Reserve Bank of India (RBI) approved only a one-year extension for the CEO, rather than the three years sought. Earlier, we saw the CFO resign, and even before that, in 2021, there were issues with the microfinance subsidiary. Given this series of concerns, do you believe there have been lapses at the management level?
A: As I explained earlier, the bank operates across various business segments, and microfinance is one of them. The microfinance business is heavily influenced by seasonal factors and political cycles, which vary by state.
As long as management remains transparent and provisions for potential risks, the market should appreciate that transparency. However, I am astonished that when a management team acknowledges a problem and provisions for it, the market reacts negatively.
As I read in the papers, this is not a one-time provision. The bank made provisions in second quarter, third quarter and now again. Furthermore, this issue was not flagged by auditors or regulators—it was the management itself that identified and disclosed it.
So, while these issues have arisen, similar challenges occur in many banks. We should give management the opportunity to clarify the situation when they speak to the media.
Q: We hope that the management will clarify further. The bank has lost nearly ₹18,000 crore in market capitalisation due to this news. As you said, transparency and trust are crucial in banking, yet there was a six-month delay in disclosure. What would you say to investors? Can you assure them that there will be no further shocks? How do you plan to ease their concerns?
A: As I mentioned, I cannot answer that because I am not fully aware of the details. When Sumant Kathpalia comes for an interview—whether on your channel or elsewhere—these questions should be directed to him. I believe he will provide fair answers.
Q: But as a promoter, given that the estimated hit is between ₹1,500 and ₹2,000 crore, while the capital adequacy ratio remains at a comfortable 15.18%, would you consider further capital infusion into IndusInd Bank if needed?
A: Let me clarify. IndusInd Bank has been in existence for over 30 years, and it has successfully navigated multiple economic cycles. For example, during the 2008 crisis and again post-COVID, promoters stepped in to support the bank. In a past capital raise, when warrants were issued at ₹1,700 per share while the market was at ₹
1,900–2,000, people doubted whether promoters would invest. But we did, despite the price difference, purely to support the bank.
Even after this provisioning, the capital adequacy ratio will still be over 15%, whereas the regulatory requirement is 12–13%. However, if additional capital is needed, promoters and long-term global investors, who have been with the company for 30 years and never exited, are committed to supporting it.
Also Read | IndusInd Bank CEO Kathpalia says RBI may be ‘uncomfortable’ with his leadership skills
For example, our involvement in the Reliance Capital insolvency process was a strategic move. Just yesterday, the Indian portion of the 26% equity was fulfilled, and ₹2,500 crore for the remaining 74% equity was injected. We expect the full transaction to be completed by Thursday.
Q: Moving to IndusInd Bank, a couple of years ago, the RBI granted in-principle approval for promoters to increase their stake from 15% to 26%. However, more than 18 months have passed. What is the status? Why has the stake not been increased yet?
A: We received the approval letter stating that promoters can increase their stake from 15% to 26%. However, there is a process to follow, and we have complied with it. Form A is one of the regulatory steps, and we have provided all necessary responses. Now, it is up to the RBI to grant final approval. Once received, we will immediately increase our stake and inject capital as needed.
Q: What conditions do you have to fulfil for the RBI to give final approval? As we understand, the shares must be unencumbered, yet about 50% of your holding is pledged.
A: If you check online, there is a standard RBI form that must be completed by any bank seeking to increase promoter holding. I cannot provide details here, but we have completed all requirements, including responding to queries.
Q: When do you expect final approval to increase the stake to 26%?
A: Unfortunately, that decision is not in our hands. We can only request the regulator to expedite the process. Perhaps after this interview, we may get approval in two days.
Q: Given the recent share price drop, have there been any margin calls on the pledged shares?
A: No, there has been no margin call at the moment. And second thing, why it is pledged. IIHL is a holding company. It has over 600 shareholders. There is no business in IIHL. It only depends on the dividend and the valuation and the NAV of the company. So the shareholders always push to the board and to the management that, why don’t you create further value? Why don’t you go for more acquisitions? This we have done. This is how the BFSI sector has come in.
Also Read | IndusInd Bank faces heat: Derivatives misstep, CEO dilemma, and a 27% stock crash
So whenever such opportunities come, and short term funding is required, if they have raised any pledged shares at an appropriate time, those shares also will be replaced. So the pockets of the shareholders and the pockets of the IIHL is very strong. I can assure you that.
Q: I just wanted to understand if there would be a need to create more pledge at all.
A: This depends on the management of the IIHL, what they think is appropriate. They also understand that they are in the BFSI sector, they are in the banking sector and they have to be very cautious and careful and at an appropriate time, whatever they think right, they propose to the board – accordingly, they take the decision. But as of now there is no such situation. Depending after this, what will happen? I don’t know, but at the moment, there is no margin call at this stage.
Q: Yesterday, on the conference call, the management alluded to the fact that the board will be meeting soon to take a call on the succession planning, whether a new CEO has to be appointed, and then consider internal and external candidates as well for the position. As a promoter, what are your expectations on that front, do you believe after this one year extension, the board could still make a case for Sumant Kathpalia to continue to submit that name to RBI, if required, and how soon will we hear from the board?
A: I will not be able to answer this, because this is not my prorogative. It is a board’s prorogative. And MD’s renewal further, it all depends on his performance in the current year.
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