Hinduja feud may hit growth prospects of IndusInd Bank

As Hinduja brothers battle it out in London court for control of $11 billion empires, the growth prospects of IndusInd Bank, which is co-promoted by the family, are likely to take a knock.

The prolonged battle between the brothers may adversely affect the fundraising plans of the bank. While the bank has not made public the need for funds, a look into its balance sheet and the lending pattern suggests that the bank may need fresh funds to fuel its growth in the coming days.

The family feud comes at a time when Indian banks are passing through headwinds due to the collapse of YES Bank. To put in perspective, after the fall of YES Bank, IndusInd Bank was one of the worst-hit along with RBL Bank as depositors took a flight to safety. The bank’s deposit base in the March 2020 quarter shrunk by 6.8%. The family through its two holding companies -- IndusInd International Holdings and IndusInd Limited -- owns 14.34% of the bank -- little below the regulatory cap of 15%, as per the shareholding pattern available on BSE.

Also Read | Hinduja brothers in UK High Court over letter dispute

At the end of March quarter, the bank’s capital adequacy ratio stood at 15.04%, CASA ratio at 40%, GNPA at 2.45%, and NNPA at 0.91%, all on the healthier side. As a result, two months ago, the bank had said regarding capital raise, when the reports emerged: “There is no specific transaction under consideration by the Board of the Bank at this stage. We stay committed to evaluating alternatives from time to time that may benefit our stakeholders. As is our practice, anything to be disclosed under LODR or applicable regulations will be duly disclosed.”

But a closer look at their balance sheet and loan book reveals that despite these healthy metrics, the bank may need capital in the near future. As much as 1.1% of the bank’s total loan book of Rs 2.07 lakh crore is stuck in the telecom sector, mostly Vodafone (about Rs 2,300 crore). Other than this, the bank has 3.36% of the loan book exposed to real estate, 3.11% in the steel sector, 2.07% in NBFCs, and 1.07% in HFCs -- all sectors that are facing stress right now. This in total amounts to Rs 22,000 crore. On the balance sheet side, the bank’s total net worth is Rs 34,196 crore, additional Tier-I capital is Rs 3,490 crore, and NNPAs stands at Rs 1,887 crore. This, in essence, means that the adjusted net worth of the bank stands at Rs 28,819 crore.

Now, of its adjusted net worth, more than three-fourth (76%) is stuck in stressed sectors. This would lead to a certain degree of impairment in the balance sheet and the need for funds. “Real Estate exposure will be a problem. The question is do they have the capital to back this or can they raise it from the global liquidity pool,” an analyst said, wishing not to be named.

The bank didn’t respond to a query sent by DH about the current internal assessment of capital raising. However, the game gets worrisome here. The promoter group’s actions have a direct impact on the fundraising plans of the bank, as we saw in the case of YES Bank.

When asked about this, the bank said, “The Promoter of IndusInd Bank is IndusInd International Holdings Ltd, Mauritius has widespread shareholding from global High Net Worth investors who have steadfastly supported IndusInd Bank for the last 25 years and the Bank will continue to benefit from their support. IndusInd Bank has over 15% capital adequacy. Matters related to the Hinduja family should be directed to them. However, the family is reported to have made a statement that there is no impact on their businesses.”

On the other side of things, the governance experts have started questioning the appointment of Ramesh Sobti as the bank’s advisor after his retirement as CEO, as they fear that it may compromise the independence of the new management. “The reason for the retirement age of 70 years is to bring in fresh approaches and thinking. By bringing in Ramesh Sobti as an advisor, the oversight would continue and may not be in the interest of the organisation,” says Shriram Subramanian, head of InGovern, a proxy advisory firm.

Sobti, after his retirement in March, took over as the bank’s advisor, media reports quoted him saying.