(Reuters) -Shares of IndusInd Bank fell nearly 6% on Monday to their lowest level since July 2022, after the country’s central bank approved a shorter extension to its CEO’s tenure, raising concerns around leadership transition and business uncertainty.
The stock was down 3.3% at 905.85 rupees as of 11:01 a.m. IST, the biggest percentage loser on the blue-chip Nifty 50 index, which rose 0.3%.
IndusInd Bank said on Friday it received approval from the Reserve Bank of India to reappoint Sumant Kathpalia as its CEO for a one year, shorter than the board-approved and the central bank’s typical three-year extension.
“Although the RBI has not provided any explanation for only a one-year extension, we believe it is not satisfied with progress on the conditions set by it during the earlier term extension, amid other concerns including mismanagement of the microfinance (MFI) portfolio leading to higher NPAs (non-performing assets),” Emkay Research said in a note.
IndusInd, like many other Indian banks, is dealing with increased stress from its microfinance segment, and its gross NPA ratio is deteriorating.
Nuvama noted that given the RBI’s preference for an external CEO in recent appointments, and if this happens, near-term earnings visibility, already impacted by a weak microfinance trend, will become lower.
Among internal candidates, Jefferies said that the bank’s deputy CEO Arun Khurana could be a front-runner for the top post.
“Until IndusInd’s succession planning is clarified and stability achieved in MFI & auto loans, we think the stock will be rangebound,” Jefferies said.
At least six brokerages, including Emkay, cut their price targets on IndusInd’s stock following the news. The median 12-month price target of 38 brokerages is now 1,210 rupees, compared to 1,280 rupees a month ago, as per data compiled by LSEG.
(Reporting by Meenakshi Maidas and Siddhi Nayak; Editing by Varun H K)
