IndusInd Bank Faces Financial Setback Due to Derivatives Discrepancies

In a recent update, IndusInd Bank Ltd revealed concerning findings from an external agency investigating its derivatives issue. The agency estimates a staggering financial impact of ₹1,979 crore as of June 30, 2024, which translates to approximately 3.1% of the bank’s net worth, valued at ₹63,815 crore. This significant revelation raises questions about the bank’s financial health and its ability to navigate these challenges.

Financial Implications of Derivatives Issue

According to the bank’s assessment, the adverse effects on its net worth are projected at 2.27% after tax by the end of December 2024. As per regulatory disclosures, IndusInd Bank reported a net worth of ₹65,102 crore as of December 31.

• Discrepancies Identified: The bank initially flagged discrepancies totaling approximately ₹1,530 crore in its derivatives accounts on March 10.
• Management Response: Sumant Kathpalia, the bank’s Managing Director and CEO, noted that such discrepancies might have influenced the Reserve Bank of India (RBI) to limit his contract extension to just one year instead of the usual three.

Internal Review and Actions Taken

An internal audit conducted by IndusInd Bank revealed lapses in its derivatives portfolio management, prompting a formal filing to the stock exchange on March 10. Initially, the bank estimated the adverse impact on its net worth at about 2.35%, but did not clarify whether this figure was pre- or post-tax.

The external agency submitted its findings on April 15, 2025, highlighting various discrepancies concerning derivative transactions. Following this, the bank’s board convened on Tuesday to discuss the implications and the necessary steps moving forward.

Next Steps and Future Outlook

IndusInd Bank has committed to reflecting the financial impact in its fiscal statements for FY25. Additionally, the bank is taking proactive measures to strengthen its internal controls surrounding derivative accounting operations.

• Forensic Review: To ensure transparency and accountability, IndusInd Bank has enlisted Grant Thornton to conduct a thorough forensic review of the accounting lapses, as reported on March 23.

Despite these challenges, CEO Kathpalia expressed confidence in the bank’s robustness, stating it is well-positioned to "absorb this one-time impact" during the fourth quarter ending March 2025.

IndusInd Bank’s situation highlights the critical importance of stringent controls and oversight in financial operations, especially in complex derivative markets. As the bank navigates through this turbulent phase, stakeholders will be keenly watching its recovery strategies and financial disclosures.