On Tuesday, Sumant Kathpalia, the CEO and Managing Director of IndusInd Bank, announced his resignation amid growing concerns over accounting irregularities in the bank’s derivatives portfolio. This decision comes on the heels of his deputy, Arun Khurana, resigning just a day prior, as both leaders faced backlash over the financial discrepancies that have shaken the institution. Since revealing the issues on March 10, the bank’s shares have plummeted nearly 8%, reflecting investor unease.
Resignation Amid Controversy
In his resignation letter to the bank’s board, Kathpalia expressed his moral responsibility for the ongoing situation related to the derivatives discussion. He stated, "I wish to submit my resignation from the services of the Bank in relation to the ongoing Derivatives discussion. I undertake moral responsibility, given the various acts of commission/omission that have been brought to my notice."
This correspondence followed closely after Khurana’s similar resignation, highlighting the gravity of the situation and the accountability taken by both leaders.
Financial Implications and Audit Findings
IndusInd Bank, recognized as the fifth-largest private lender in India with an impressive balance sheet of $63 million, has indicated a significant financial repercussion. The bank revealed it would incur a $229.56 million impact on its accounts for the recently concluded financial year due to errors in the treatment of derivatives spanning several years.
An external audit conducted by Grant Thornton, a reputable independent firm, has determined that the bank’s net worth will suffer a 2.27% hit. This audit, submitted on Saturday, outlined a total impact of ₹1,959.98 crore on the profit and loss account as of March 31, aligning closely with earlier disclosures made on April 15.
Key Findings of the Audit
The audit report pinpointed the mismanagement of internal derivative trades, particularly in cases of early termination, as the primary cause of the accounting discrepancies. The bank acknowledged this in a recent filing with the stock exchanges, stating, "The report identifies incorrect accounting of internal derivative trades, especially in case of early termination, which resulted in recording of notional profits, as the principal root cause for accounting discrepancy."
Conclusion
As IndusInd Bank navigates this tumultuous period, the focus now shifts to how the organization will address these accounting challenges and regain investor confidence. The leadership changes come at a critical time, and stakeholders will be keenly watching for further developments in this unfolding story.
