{"id":414673,"date":"2025-05-22T17:47:04","date_gmt":"2025-05-22T12:17:04","guid":{"rendered":"https:\/\/zerodha.com\/z-connect\/?p=414673"},"modified":"2025-05-22T17:47:04","modified_gmt":"2025-05-22T12:17:04","slug":"why-is-indusind-banks-casa-ratio-a-red-flag","status":"publish","type":"post","link":"https:\/\/zerodha.com\/z-connect\/varsity\/why-is-indusind-banks-casa-ratio-a-red-flag","title":{"rendered":"Why is IndusInd Bank\u2019s CASA ratio a red flag?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">In its fourth quarter and FY25 results, IndusInd Bank reported a decline in its CASA ratio from 38% last year to 32.8% this year. A decline in this ratio is concerning when the absolute deposits have also fallen, and that is what has happened with IndusInd Bank.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Its CASA deposits have fallen from Rs. 1.46 lakh crore last year to Rs. 1.35 lakh crore this year. It is worrisome because:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It indicates that customers are increasingly doubting the bank\u2019s ability to recover from the accounting irregularities it reported in March 2025.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Both current account and savings account deposits have fallen. Customers across the board are panicking.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">CASA is the cheapest source of funds for any bank. The bank can borrow from the RBI at 6.25% because that is the repo rate. CASA deposits, on the other hand, cost a bank 4% or less. You make less than 3-3.5% on your savings account. Most banks don\u2019t pay anything on a current account. So, the cheapest source of funds is diminishing for the bank.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">When CASA declines, banks usually start offering higher interest rates on savings accounts and fixed deposits. This hurts the bank\u2019s net interest margin and, thus, its profitability.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">On the brighter side, Indusind\u2019s <\/span><b>liquidity coverage ratio, or LCR<\/b><span style=\"font-weight: 400;\">, has improved from 118% last year to 139% this year. But is it really a relief?<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">LCR is the minimum amount of high-quality liquid assets a bank must maintain to meet its short-term (30-day) cash obligations. In a stress scenario, if customers want their deposits back, the bank must have enough liquidity to meet all withdrawal demands for at least 30 days.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It is nice that the bank\u2019s LCR has improved, but how did it improve despite a decline in CASA? <br \/>\n<\/span>A decline in CASA means the bank witnessed a heavy cash outflow. To keep its healthy cash and liquidity position intact and improve it further, perhaps the bank moved its investments from growth assets to low-yield, high-quality assets. Perhaps the bank will also slow down its lending activities.<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To top it up, if Indusind Bank were to raise fresh debt, investors will demand <\/span><b>higher yields <\/b><span style=\"font-weight: 400;\">to compensate for the heightened perceived risk<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">All of these numbers point to a possible shrinking of net margins. Thinner net margins usually translate to thinner profits.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Then there are the NPAs. Indusind\u2019s <\/span><b>gross NPAs<\/b><span style=\"font-weight: 400;\"> shot up to 3.13% in March 2025 from 1.92% a year earlier. In an internal review the bank identified that it had been carrying certain microfinance loans of roughly Rs 1800 crores as standard assets while they should have been NPAs. Is it possible that a stricter audit into accounting lapses led to a more proactive identification of NPA accounts?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But it is not just numbers that have caused discomfort among Indusind Bank\u2019s customers and investors. What began as a disclosure of discrepancies in March 2025 has since become a Pandora\u2019s box of woes, ranging from misreporting and accounting lapses to leadership instability.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Indusind first reported discrepancies in how two divisions of the bank were reporting the same types of transactions differently. It expected an impact of roughly 2.35% on its net worth and hired an external auditor to ascertain the exact impact. Grant Thornton, the external auditor, confirmed losses of similar magnitude.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Citing accountability, the CEO and Deputy CEO resigned from their positions. So the bank is now undergoing a senior management overhaul.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">As the audit continued, the board identified Rs. 674 crores as incorrectly recorded interest income in the first three quarters of FY25. This was apparently corrected on 10 January 2025 but reported on 15 May 2025, over four months later. Insiders basically sat on material public information for four months before disclosing it to the public.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">SEBI is probing a few officials of IndusInd Bank for possible insider trading.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">That is not all, the bank\u2019s board also identified Rs. 595 crores in unsubstantiated claims following a whistleblower complaint. And most recently, it flagged a suspected case of internal fraud in its microfinance unit, with Rs. 172.58 crores wrongly recorded as fee income.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Despite the first ever quarterly loss in 18 years, Indusind closed FY25 with an annual profit. The balance sheet remains healthy despite a 99 bps drop in its capital adequacy ratio from 17.23% last year to 16.24% this year.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It is unclear whether to appreciate the bank\u2019s forthcoming stance on all irregularities it is spotting or to condemn it for letting so many irregularities go unnoticed for years.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In its fourth quarter and FY25 results, IndusInd Bank reported a decline in its CASA ratio from 38% last year to 32.8% this year. A decline in this ratio is concerning when the absolute deposits have also fallen, and that is what has happened with IndusInd Bank. Its CASA deposits have fallen from Rs. 1.46 [&hellip;]<\/p>\n","protected":false},"author":242541,"featured_media":414676,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[477],"tags":[1130,1149],"class_list":["post-414673","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-varsity","tag-banking","tag-indusind"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.5 (Yoast SEO v26.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Why is IndusInd Bank\u2019s CASA ratio a red flag? &#8211; Z-Connect by Zerodha<\/title>\n<meta name=\"description\" content=\"Indusind&#039;s CASA deposits have fallen from 1.46 lakh crore last year to 1.35 lakh crore but LCR still improved. 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