Is IndusInd Bank Safe? What Depositors and Investors Must Know Now

IndusInd Bank has been making headlines lately, and not for the best reasons. News of a complex financial situation involving NRI deposits and a hefty loss has left many wondering about the bank’s stability and what it means for their money.

Don’t worry, we’re here to break it down in simple terms. This article explains everything that’s happening with IndusInd Bank, what went wrong, and what it means for both depositors and investors. We’ll also provide some insights on what to do next.

What’s the Story?

Here’s the gist: IndusInd Bank has been attracting a lot of deposits from Non-Resident Indians (NRIs) by offering them good interest rates. This seems like a smart move, right? More money for the bank. But, there’s a catch. These deposits are in foreign currencies like US dollars, and the value of these currencies can go up and down compared to the Indian Rupee. This is where things get a bit tricky.

How Did the Risk Build Up?

Step 1: NRI Deposits
NRIs deposit foreign currency (like USD) into IndusInd Bank. The bank converts this into INR for lending. But when the deposit matures, the bank must repay in foreign currency. If exchange rates fluctuate, the bank faces losses.

Step 2: Hedging the Risk
The bank uses two teams to manage this risk:

ALM Team: Converts foreign deposits to INR (e.g., $1M → ₹8.7 crore at ₹87/USD).
Trading Team: Takes over the exchange risk via an internal agreement.

Step 3: External Hedging
The Trading Team then partners with global banks to lock in exchange rates. This “external hedge” protects against future rate swings.

The Problem: Accounting Mismatch

Internal swaps were recorded at the original rate (e.g., ₹87/USD).
External swaps were adjusted daily to market rates.

Example: If the USD/INR rate drops to ₹80 by 2024:

The bank owes $1M but now needs ₹8.7 crore (original rate) instead of ₹8 crore (current rate).
This creates a ₹70 lakh loss per $1M deposit. Multiply this across thousands of deposits, and losses add up.

Impact on the Bank

Loss: ₹1,500 crore (after tax) in Q4 2024.
Significance: Just 2.3% of the bank’s net worth. The bank claims this is a one-time issue.

How Big is the Problem?

The bank says it will lose around 1500 crore rupees because of this. That’s a lot of money, but it’s not enough to sink the bank. IndusInd Bank is a big bank with a lot of other investments and loans. So, depositors don’t need to panic. Their money is safe.

What About Investors?

For investors who own shares of IndusInd Bank, things are a bit more complicated. The bank’s shares have dropped in value because of this news. Some investors might be tempted to buy more shares now that the price is lower, hoping to make a profit when the price goes back up. But that’s risky.

The bank still has some challenges to overcome, and it will take time for things to settle down. It’s better to wait and see how the situation unfolds before making any big investment decisions.

What Should You Do?

If you’re a depositor: Don’t worry, your money is safe. IndusInd Bank has enough resources to cover this loss and protect your deposits.
If you’re a long-term investor: You might want to hold onto your shares and wait for the bank to recover. But keep an eye on the situation and be prepared to sell if things get worse.
If you’re thinking of investing: It’s probably best to wait for now. There are other banks that are doing well, and it’s not worth taking a risk on IndusInd Bank right now.

The Bottom Line