Kitchen Sink Accounting by Large Indian Banks - History

The term "kitchen sink" in the context of corporate earnings refers to a strategy where a company takes significant one-time charges, write-offs, or provisions in a single quarter to clean up its balance sheet, often to address accumulated issues and set a lower base for future performance. IndusInd Bank's Q4 FY25 results, announced on May 21, 2025, are a recent example, with a reported net loss of ₹2,328.92 crore, driven by ₹1,979 crore in derivative losses, ₹674 crore in overstated interest income, and microfinance portfolio stress.

Historical Examples of "Kitchen Sink" Accounting by Large Indian Banks

1. State Bank of India (SBI) - Q3 FY17 (2016-17)
   • Context: In Q3 FY17, SBI took significant provisions to address non-performing assets (NPAs) amid the Reserve Bank of India's (RBI) Asset Quality Review (AQR), which mandated banks to recognize stressed assets transparently. SBI reported a 67% drop in net profit to ₹2,610 crore, with provisions for bad loans surging to ₹10,126 crore, up 45% YoY, as it cleaned up its balance sheet to account for legacy NPAs in sectors like steel and infrastructure.
   • Price Reaction: Post-results, SBI's stock fell by approximately 4-5% over the next few trading sessions (February 2017), reflecting investor concerns over the sharp rise in provisions and NPAs (gross NPA ratio rose to 7.23%). However, the stock recovered within a month as the market viewed the cleanup as a step toward long-term stability, supported by SBI’s strong fundamentals and government backing. By the end of FY17, the stock had gained ~20% from its post-result low.
   • Outcome: The aggressive provisioning helped SBI reduce its NPA burden over subsequent quarters, improving investor confidence. The stock benefited from the merger with associate banks in 2017, which further bolstered its market position.
2. ICICI Bank - Q4 FY18 (2017-18)
   • Context: ICICI Bank reported a 50% drop in net profit to ₹1,020 crore in Q4 FY18, driven by a ₹6,626 crore provision for bad loans, nearly double the previous year’s amount. This was part of a "kitchen sink" effort to address stressed assets in the power, steel, and telecom sectors, exacerbated by RBI’s tightened NPA norms. The bank also faced governance concerns due to allegations of conflict of interest involving its then-CEO, Chanda Kochhar.
   • Price Reaction: The stock plummeted ~8% in the week following the results (May 2018), with additional pressure from governance issues. The gross NPA ratio climbed to 8.84%, spooking investors. However, over the next 6-12 months, the stock recovered ~15-20% as the bank’s aggressive provisioning reduced future NPA risks, and new leadership restored confidence.
   • Outcome: The cleanup improved ICICI Bank’s asset quality (gross NPA dropped to 5.43% by FY20), and the stock rallied as investors rewarded its transparency and recovery efforts.
3. Axis Bank - Q4 FY19 (2018-19)
   • Context: Axis Bank reported a net profit of ₹1,505 crore in Q4 FY19, but provisions spiked to ₹3,012 crore, up 50% YoY, to address stressed corporate loans and align with RBI’s divergence findings. The bank took a one-time hit to clean up its balance sheet, particularly in its wholesale lending portfolio, as part of a strategic shift under new CEO Amitabh Chaudhry.
   • Price Reaction: The stock fell ~3-4% immediately after the results (April 2019) due to the high provisions and a gross NPA ratio of 5.26%. However, the market quickly digested the news, and the stock gained ~10% within three months as investors appreciated the bank’s proactive approach to resolving legacy issues and its focus on retail lending.
   • Outcome: Axis Bank’s asset quality improved significantly (gross NPA fell to 3.44% by FY21), and its stock price saw sustained gains, reflecting confidence in its turnaround strategy.