Brokers wary of IndusInd CEO’s shortened second term
The decision by the Reserve Bank of India (RBI) to grant IndusInd Bank CEO Sumanth Kathpalia a two-year extension instead of three has surprised analysts and investors.
Brokerage JP Morgan downgraded the private sector bank’s rating to neutral and cut its target to €1,060 per share. “We note that in the past five trading sessions IIB (IndusInd Bank) has outperformed expectations that RBI would grant a three-year extension, and we expect the stock to react negatively. So far, RBI has not given any reason for this that would highlight any operational concerns,” JP Morgan said in its report on Monday.
IndusInd Bank shares fell 7.46% to €1,060 on Monday as the market expressed disappointment over Kathpalia’s reduced second term. IndusInd shares are up 9.45% year-to-date this fiscal year compared to Bank Nifty’s 6.5% gain, indicating that it is outperforming Bank Nifty’s.
Kathpalia was appointed MD and CEO in 2020, upon the retirement of Romesh Sobti. Last September, IndusInd Bank’s board of directors had approved a three-year extension for Kathpalia and sent the proposal for a final deal to RBI. Kathpalia’s current term as CEO expires on March 24. In February, the bank appointed Sunil Mehta as its new part-time chairman for a three-year term.
Macquarie research said the investors are asking if the central bank is comfortable with Kathpalia as MD and CEO. “In our view, the MD and CEO of IIB stabilized the bank, focused on retail liabilities, recognized asset quality issues, and worked to improve balance sheet granularity, ultimately improving yield ratios. We are not sure whether the whistleblower complaint regarding the MFI (microfinance) book played a role in RBI’s decision,” Macquarie said in a report Monday.
Jefferies said a shorter second term could mean a slowdown in growth and delay a reassessment. It cut estimated credit growth by 100 basis points for FY24-25. “The shorter term extension may reflect the need to improve controls (MFI event), liabilities (retail mix) and underwriting (retail and lower risk). We see this as a reasonable time to demonstrate progress as the bank has already taken steps on these points.”
Other reappointments this year will include Sandeep Bakshi from ICICI Bank, Sashidhar Jagdishan from HDFC Bank, Uday Kotak from Kotak Mahindra Bank and N. Kamakodi from City Union.
Catch all company news and updates on Live Mint. Download the Mint News app for daily market updates and live business news.