Tag: IndusInd Bank

The managing director and chief executive officer of IndusInd Bank left his post on April 29, just hours after the stock market closed and right after the bank allegedly announced that it was thinking of redoing assets on its balance sheet, something that S&P Global Ratings had already flagged as a concern. The poor handling of derivatives by the bank was also cited as a reason for Kathpalia’s swift departure. And the bank’s low capital ratios were a huge problem. The bank’s plan was to raise capital through a rights offering; however, the offer was downsized in respect to the amount of stock that insiders would buy.

The resignation comes after a stormy few months for the lender. The Reserve Bank of India (RBI) granted only a one-year extension to Kathpalia, who had been asking for a full three-year term to finish his work. Kathpalia’s exit lines up with that of Deputy CEO Arun Khurana, who has also stepped down and admitted to having a part in overseeing the treasury operations involved in the accounting mess.

Derivatives Discrepancies Rock Bank’s Financials

Central to the crisis is a mismatch in the bookkeeping of the bank’s internal derivative trades. An initial disclosure from IndusInd Bank indicated a possible adverse effect of 2.35% on its net worth as of December 2024. This led to a one-day stock plunge of 26%, incriminating a lot of investor coffers in the bank.

The damage was later estimated by the external audit firm PwC at INR 1,979 crore, slightly lowering the potential impact to 2.27% of net worth. A forensic audit submitted on April 26 by Grant Thornton found that the main reason for the misreporting was the incorrect recording of notional profits from internal derivative trades that were terminated prematurely.

The consequences of these disclosures are being felt at the highest levels of the bank. The following urgent actions are now taking place:

• Responsibilities at the senior level are being restructured.
• Stricter internal controls are being implemented.
• Interim Leadership and Regulatory Response

RBI’s Calming Influence

After high-level departures, IndusInd Bank has asked for the Reserve Bank of India’s approval to set up a committee of senior executives to manage the CEO’s responsibilities during the interim period.  The board is said to be reviewing existing leadership positions, with an eye toward sorting out who should be held accountable for what, and going forward, ensuring that lapses of this kind don’t happen again.

In spite of the upheaval, the Reserve Bank of India has tried to calm the market. It has specifically stated that IndusInd Bank is well-capitalized and in good financial health. RBI Governor Sanjay Malhotra has even called it an “episode” instead of a call for the Indian banking system as a whole being under duress, saying that the Indian banking system is safe and stable.

The bank must now confront two tasks: regaining the trust of investors and stabilizing its leadership. Although we can expect continued stock volatility in the short term, the bank’s swift actions, including appointing independent auditors and starting a forensic review, indicate a willingness to address head-on the sorts of internal weaknesses that gave rise to this mess.

IndusInd Bank has resolved to completely take on the loss of INR 1,959.98 crore for its quarter ending March 2025. This decision stems directly from the outcome of an independent investigation into the bank’s derivatives portfolio. The investigation found a number of significant internal accounting problems, the most critical of which involved the premature termination of derivative contracts. Those problems led the bank to record notional profits, which in turn distorted its financial position. After receiving the final report on April 26, the board acted quickly to ensure that the bank’s FY25 full-year financial statements reflected the true nature of the discrepancies.

Accountability Measures and Leadership Reorganization

In a response to the probe’s findings, IndusInd Bank announced it will take stringent actions against employees who are found to be responsible for the lapses and will re-organize senior management roles. The realignment is aimed at not just strengthening internal oversight but also restoring trust among all stakeholders.

The troubles at IndusInd Bank began with derivatives-related losses but quickly escalated. In April 2025, when auditors from EY began an in-depth review of the bank’s books, several gaping holes came to light. Using metrics not seen since the 2008 financial crisis, EY’s examiners found that the bank was something like 60% overcapitalized. And as they dug deep into the numbers, a previously unapprehend disaster unfolded. The bank’s books had been so badly cooked that the actual level of its capital was far beneath the regulatory minimum.

Operational Pressures Add to Headwinds

IndusInd Bank was struggling with accounting problems, but that wasn’t all. When the bank released its Q4 FY25 business update, it not only bombarded investors with a bunch of accounting issues and alleged it was fixing them, the way the Bank of Baroda and the Punjab National Bank have also done in the past, but it also revealed operational challenges in the form of a big miss on net advances. For instance, the bank’s net advances shrank 5.2% quarter-on-quarter (QoQ) to INR 3,47,933 crore (as of the end of March) largely due to a steep contraction in the corporate banking portfolio.

Meanwhile, while total deposits grew a modest 0.4% over the quarter, in line with the bank’s reduced ability to generate net advances, the bank’s CASA ratio dropped to 32.8% from 37.9% a year earlier, spotlighting weakening deposit franchise strength. As a result, not only are the bank’s customers losing confidence in it, but also the entities who are supposed to keep the bank’s CASA strong.

IndusInd Bank stocks tumbled, down 6.3% to INR 776.15 on the Bombay Stock Exchange, after the lender decided to call in EY to look into a shortfall of INR 600 crore in its microfinance portfolio. The forensic audit was prompted by the revelation from the bank’s statutory auditors that there was a serious question to be raised about the bank’s financials for the fiscal year that ended March 2025. This event, the most recent of several in a very short timeline, is adding to the apparent unraveling of the bank’s governance and accounting practices.

As of the time of reporting, the stock had slightly regained some ground, but it was still down 4.33%, trading at INR 792.20. Its steep one-year drop of 46% spotlights the combined impact of continuous operational warning signs and uncertainties over its audits. Investors are keeping a close watch on it, especially since the stock’s price persistently hovers beneath some important technical levels, specifically, the 50-day, 100-day, 150-day, and 200-day simple moving averages.

EY Brought in Amid Mounting Pressure

The bank has enlisted EY, renowned for housing the country’s heftiest forensic accounting outfit, to get to the bottom of the identified irregularities. Were they fraudulent? If so, who is accountable? The investigation concerns transactions that apparently took place in the second and third quarters of FY2025. Insiders say the discrepancy doesn’t cover multiple fiscal years, but the opacity of what is happening, have turned up the heat on investors.

This fresh inquiry is separate from the ongoing audit by Grant Thornton Bharat, which is examining irregularities in IndusInd’s operations involving foreign exchange derivatives. The fact that EY has now been appointed indicates some level of urgency on the part of the board. Further, in light of this audit by Grant Thornton Bharat, it is a positive sign that the board is taking additional steps in conjunction with the appointment of EY.

Past Incidents Compound Investor Concerns

IndusInd’s financial issues have now led to a forensic audit, but that’s not the bank’s first brush with scrutiny. In mid-April, an audit report was released to the investing public, detailing PwC’s review of IndusInd’s portfolio. Derivative securities, while serving useful purposes in hedging and other financial strategies, can also be risky. And how risky was IndusInd’s portfolio, according to PwC? The accounting firm estimated that potential post-tax losses might hit INR 1,979 crore (around $275 million).

The bank has recognized that the accounting effect of these losses amounts to 2.27% of its net worth as of December 2024, calculated using June 2024 P&L data. Adding to the concern, these cumulative issues have harmed sentiment and kept the stock under pressure, even though it had a brief rise of 16.6% in March.

Despite some small technical recoveries, the long-term prognosis for the bank is seen as cautious. The 14-day Relative Strength Index (RSI) sits at 62.2, an area that tends to signal a neutral trend, but participants are anything but confident and in a hurry to forge ahead. With EY’s findings still pending and the Grant Thornton audit ongoing, a clearer path forward seems anything but imminent. Confidence in the dusky outlook for risk-and-compliance nether-lights has encouraged would-be investors to keep their checkbooks closed.