The departure of two senior IndusInd Bank executives has followed the revelation of a Rs 1,959 crore accounting discrepancy in internal derivative trades. A forensic probe led by Grant Thornton has exposed how red flags were ignored by top leadership, raising serious questions about internal controls and corporate governance.
Emails, Evasion, and Resignations: What the Probe Uncovered
In a revelation that has sent shockwaves through India’s banking industry, an independent investigation by global accounting firm Grant Thornton has found that former deputy CEO of IndusInd Bank, Arun Khurana, was aware of serious accounting irregularities related to internal derivative trades but chose to ignore warnings flagged by the finance department.
The forensic report, uncovered email evidence that directly implicated Khurana in knowingly sidelining internal alerts. He resigned on April 28, just two days after the damning report reached the bank’s board. Khurana, who had been with IndusInd since 2011 after a stint at Royal Bank of Scotland in Singapore, had presented a very different picture to analysts just weeks earlier. In a March 10 investor call, he attributed the discrepancies to the bank adjusting to the Reserve Bank of India’s new regulatory norms that came into effect on April 1, 2024.
However, the audit findings tell another story one where misreporting and poor oversight, rather than procedural confusion, led to a nearly Rs 1,959.98 crore financial hole.
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A Swift Fallout: Leadership Crisis and Regulatory Oversight
The report’s fallout has been swift and severe. Following Khurana’s exit, IndusInd Bank’s Managing Director and CEO, Sumant Kathpalia, tendered his resignation, taking “moral responsibility” for the episode. A day after the report’s submission, the bank publicly disclosed to exchanges the full extent of the accounting damage, triggering scrutiny from regulators and shareholders alike.
In response, the Reserve Bank of India (RBI) has intervened by authorizing the board to establish an executive committee to manage the bank’s day-to-day operations in the absence of a CEO. Meanwhile, the bank has retained headhunting firm Spencer Stuart to identify Kathpalia’s successor a move seen as critical to restoring investor confidence and regulatory trust.
Technology, Process Gaps, and the Calypso Conundrum
At the heart of the issue lies a sophisticated but misused technology platform. Since 2013, IndusInd has relied on Calypso Technology’s platform to manage and process its derivatives portfolio. However, the report indicates that internal hedge trades were either not properly recorded or misclassified, leading to accounting mismatches that snowballed into a Rs 1,959 crore discrepancy.
The problem wasn’t just technological it was organizational. When Grant Thornton auditors interviewed finance and trading employees, inconsistencies in their accounts surfaced. “Their stories did not match,” suggesting systemic failures in internal oversight and compliance.
Khurana’s assertion that the losses were a result of adapting to RBI’s Master Direction on Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (issued in September 2023) appears to have been a deflection, as the firm’s investigation contradicted his narrative. The rules in question only came into effect in April 2024, well after the problematic trades had already been executed and improperly recorded.
Governance Under the Lens
This case has revived longstanding concerns about the robustness of internal controls in Indian banks especially those that heavily rely on complex instruments such as derivatives. Experts are calling for a thorough regulatory probe to determine whether similar accounting practices are widespread across other institutions.