As of now, the way the media has made out the IndusInd story, it looks like just an accounting anomaly, which is being provided for, albeit on temporary basis. The problem arose with the FCNR bank deposits that IndusInd had taken from NRIs abroad. For NRIs, FCNR deposits are a safe method since they are held in foreign currency (dollars, Euro, Yen), and the forex risk, if any, is borne by the particular bank. In this case, any fall in the rupee value would be managed by IndusInd Bank. The whole issue was a temporary mismatch, to be provided for. 

Let us get little more into the mechanics of how the forex risk in an FCNR deposit is managed by the bank. Typically, the bank assigns the forex risk to its treasury desk such that the bank gets back the dollar principal at the end of the tenure. Remember FCNR are of fixed tenure from 1 year to 5 years. Technically, if the forex position is hedged, then there will be a hedge cost to the bank, but then it is protected beyond a level. That is the way most banks handle currency risk, in the case of FCNR deposits. In such cases, the issue is just a mark-to-market mismatch. 

For now, the story that we get to hear is that the ₹1,600 crore hit that the bank has to take in Q4 is purely a technical issue, which is due to a mismatch. But, there are a lot of uncomfortable queries that arise. Firstly, IndusInd had taken nearly 15% of its total deposit base as FCNR deposits with a forex cover risk. It should have been highlighted in the previous quarter results, but neither the management mentioned it in the MDA, nor did the auditors highlight the issue at any point of time. Secondly, the bigger question is whether the positions were actually fully hedged or was the bank actually trying to make up for currency losses by playing in the treasury space. Clearly, these are not issues that the RBI or the bank will disclose, but they matter. 

Analysts and investment advisors have repeatedly assured people that IndusInd deposit holders need not be worried. However, the same cannot be said about investors in IndusInd Bank. The stock has already cracked to its yearly low. The stock is part of the Nifty 50 and we had seen a similar sell-off even when the Yes Bank crisis had boiled over in 2020. The big question is; if the CEO of IndusInd Bank was guilty of action (or inaction), then why was he not removed. What is the whole point of extending his tenure by 1 year instead of 3 years. It is time to look at banking stocks more closely!