Moody's Ratings downgrades IndusInd Bank's standalone credit profile, changes outlook to negative

Global rating agency Moody’s on Friday downgraded IndusInd Bank’s baseline credit assessment to ba2 from ba1, citing concerns over inadequate management oversight and uncertainty surrounding the bank’s medium-term strategy following the resignation of senior leadership. The rating agency, however, affirmed the bank’s long-term ratings at ba1. It also revised the outlook to negative from stable.

“We have changed the rating outlook to negative from stable to reflect the potential for further impact in the bank's solvency, funding, or liquidity, as IndusInd continues efforts to stabilise its operations and strategy under a new management team,” Moody’s said in a press release.
Given the negative outlook, an upgrade of IndusInd bank's ratings is unlikely over next 12-18 months, the agency said.

Moody’s also said that the downgrade of IndusInd's standalone credit strength, or BCA reflects weakness in its internal controls as highlighted by the discrepancy in derivatives accounting. The agency considers these issues as governance risks under its Environmental, Social and Governance (ESG) framework and has lowered the bank's Governance Issuer Profile Score to 4 from 3. It has also made a negative corporate behavior adjustment in the bank's standalone assessment.

Though the agency affirmed the lender’s long-term foreign currency, local currency, bank deposits and issuer ratings. Moody’s said that the affirmation of IndusInd's Ba1 ratings considers the bank's strong capital, core profitability and adequate liquidity which will help mitigate near term risks to its funding and asset quality. The Ba1 ratings also reflects Moody’s assumption of moderate level of government support for the bank, in times of need.

Last month, IndusInd's Managing Director & CEO Sumant Kathpalia and Deputy CEO Arun Khurana resigned from their positions following the completion of the review by the external agency of the discrepancy in accounting for derivative transactions.

While the external agency's estimate of the one-off loss was in line with the bank's internal estimate as reported on 10 March 2025, the accounting lapse highlights inadequate internal controls, Moody’s said.

“The resignation of the top management has also raised concerns on other potential lapses which may get uncovered over the next few quarters,” it said.

IndusInd's asset quality is experiencing some stress with gross nonperforming loans ratio deteriorating to 2.3% at the end of December 2024 from 1.9% at the end of March 2024, due to an increase in bad loans in the microfinance and credit card loan segment amid industry wide challenges in subprime retail loans.

The bank is also conducting an internal review of its microfinance business before finalising the accounts for the quarter ending March 2025, in response to concerns raised to management.

“While we expect IndusInd's NPLs to increase further, the bank's adequate provisioning will limit the impact on profitability and capital,” the rating agency said.