IndusInd Bank has appointed global consulting firm Ernst & Young (EY) to conduct a second forensic audit into a significant Rs 600 crore discrepancy in the accrued interest income from its microfinance portfolio.
The decision follows the discovery of irregularities during the ongoing statutory audit for the previous financial year, as reported by sources. Auditors flagged the issue under Section 143(12) of the Companies Act, 2013, prompting the bank to initiate a thorough investigation.
The forensic audit will seek to determine whether operational lapses or fraudulent activities contributed to the discrepancy and establish accountability. EY, which operates India’s largest forensic audit practice, is tasked with investigating the matter further. This audit will run concurrently with an ongoing forensic investigation by Grant Thornton Bharat (GTB), which is focusing on irregularities in the bank’s forex derivatives portfolio.
According to sources familiar with the investigation, the irregularity seems to have occurred within the last financial year, most likely during the second or third quarters. However, EY’s investigation will delve deeper into the issue to rule out any potential fraud.
In light of time constraints, IndusInd Bank opted for EY’s expertise, especially as GTB’s primary investigation is expected to conclude by the end of April. EY’s relationship with the bank is well-established, with its affiliate SR Batliboi & Co. having served as the bank’s auditor for the fiscal year 2018–2019. Additionally, EY consultants assisted in reviewing the bank’s derivatives portfolio in the March 2024 quarter.
This forensic audit comes on the heels of another significant disclosure by the bank. Earlier this month, IndusInd revealed that PwC, which was hired to review the bank’s forex derivatives accounting, estimated potential losses of Rs 1,979 crore—higher than the initial projections of Rs 1,600 crore. PwC’s report included considerable disclaimers, adding complexity to the ongoing investigation.
As part of its internal assessment, IndusInd Bank has estimated that the impact of these anomalies could result in a 2.27% post-tax hit to its net worth by December 2024, based on the June 2024 profit and loss account. The ongoing forensic audits highlight the bank’s commitment to transparency and accountability in addressing these financial discrepancies.