Despite numerous audits, including internal, statutory, and compliance audits as well as one by the RBI, the disparity in IndusInd Bank’s treasury operations remained undetected.
The management’s pledge did not stop the wild fall of shares, which plummeted more than 27% on the bourses. IndusInd Bank addressed the repercussions of a Rs 2,100 crore accounting error on Tuesday, claiming it had sufficient reserves and capital to cover it.
According to Sumant Kathpalia, CEO and Managing Director of IndusInd Bank, the accounting error was discovered in September or October of last year, and the bank provided the RBI with an initial update on it last week. The precise figure won’t be known until early April, when the external firm the bank hired completes its report.
Private sector lender IndusInd Bank said in a stock exchange statement on Monday that it has discovered significant disparities in its derivatives portfolio that, according to its internal investigation, might negatively affect roughly 2.35 percent of the bank’s net worth as of December 2024.
In absolute terms, analysts estimate the disparity to be Rs 2,100 crore.
Concurrently, the bank has designated an outside organization to impartially examine and confirm the internal results. “The bank’s capital adequacy and profitability are strong enough to withstand this one-time effect. The bank found the problem… “The bank has sufficient capital and reserves to handle this,” Mr. Katpalia stated.
IndusInd Bank’s stock fell 27.17% to settle at Rs 655.95 on the BSE. The stock had fallen 28% from Monday’s closing price of Rs 900 to its one-year low of Rs 649 a share during the day’s trading.
Mr. Kathpalia stated on a late-night analyst call on Monday that the derivative portfolio difference had been built up in the book over the course of five to seven years before April 1, 2024.
Despite numerous audits, including internal, statutory, and compliance audits as well as one by the RBI, the disparity in IndusInd Bank’s treasury operations remained undetected.
He said that following the RBI circular in September 2023, which stipulated that internal trade in derivatives was to cease on April 1, 2024, the bank began examining its internal trade book.
We recruited an outside organization to examine our business after we began to notice irregularities in our (derivatives) operations in October. Because of this, we are confident that we (the external agency report) will be able to pinpoint the gaps by the end of March or the beginning of April,” Mr. Kathpalia stated.
According to Mr. Kathpalia, last week, IndusInd Bank provided the financial regulator, the RBI, with a “preliminary update” regarding this disparity.
“Of course this would have a bearing because they were aware of the issue,” Mr. Kathpalia responded when asked on the analyst call if this disparity had affected his re-appointment as MD & CEO.
Last Monday, the RBI granted Mr. Kathpalia a one-year extension till March 23, 2026, instead than the three years the bank’s board had suggested.
“I am unsure of the reasoning behind their one-year sentence. However, I believe they are uneasy with my leadership style of managing the bank, and we must accept it. This serves as a litmus test for the bank, and we can see how to move it forward from a succession point. I do not believe that the bank’s business as usual (BAU) will suffer, nor do I believe that the growth agenda will veer off course,” Katpalia stated.
