An internal audit system left understaffed, regulatory warnings ignored, and accounting discrepancies hidden for years IndusInd Bank now finds itself in the eye of a growing financial storm. With losses mounting and top executives resigning, the Reserve Bank of India may be forced to step in directly.
A Silent Alarm: RBI’s Early Warning and Management’s Dismissal
The seeds of IndusInd Bank’s current crisis were sown long before the discrepancies made headlines. In its 2022–23 annual inspection, the Reserve Bank of India (RBI) flagged serious issues with the bank’s Internal Audit Department (IAD), citing it as structurally weak and chronically understaffed. However, insiders say the warning was effectively brushed aside by the bank’s management.
“The weakness in IAD seemed almost deliberate,” a source familiar with the matter said. “No one took responsibility. Even when internal finance and risk teams flagged the irregularities, they were ignored or silenced.” Despite repeated concerns raised with the bank’s then-deputy CEO Arun Khurana, little action was taken. Khurana resigned in April 2025, followed by former MD and CEO Sumant Kathpalia, who stepped down citing “moral responsibility.”
This culture of indifference, some say, allowed systemic lapses to fester beneath the surface.
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Discrepancies, Derivatives, and a Domino Effect
The public unraveling began only in March 2025, when IndusInd Bank acknowledged discrepancies in its derivatives portfolio, a segment that had been plagued by irregular accounting since its inception. The management disclosed that the issue could reduce the bank’s net worth by ₹1,530 crore a staggering admission for a leading private lender.
What followed was a multi-agency forensic investigation:
- PwC was brought in to assess the financial damage.
- Grant Thornton initiated a root-cause analysis.
- Ernst & Young (E&Y) was engaged to investigate business records, particularly in the micro loan portfolio.
Together, these probes uncovered erroneous trading practices, incorrect income recognition, and questionable financial reporting that had gone unchecked for years. Losses were estimated at ₹2,000 crore, including the misrecording of ₹674 crore as interest income across three quarters of FY25 an amount that was eventually reversed in January 2025.
Despite the magnitude of these revelations, the bank has yet to fully explain the root causes behind the failures or the measures taken to prevent recurrence. Financial expert Abizer Diwanji stressed the urgency of clear disclosures, stating, “Issues are trickling out one after another, and the bank’s explanations often deflect from the core problem.”
Regulatory Repercussions and The Road Ahead
In the wake of top-level resignations and mounting losses, regulatory intervention appears imminent. Experts suggest the RBI may soon appoint its own executive to the board, mirroring its past move with RBL Bank, where governance lapses prompted direct oversight. The central bank may also block any increase in promoter stake, especially given the violation of disclosure and risk norms.
The immediate priorities for IndusInd Bank include:
- Appointing a new CEO with crisis management credentials.
- Restoring credibility with investors and depositors.
- Stabilising its balance sheet through internal restructuring rather than aggressive growth.
Audit firms involved with the bank will also face scrutiny over how such discrepancies were missed despite being the last line of defense. Questions loom over the efficacy of internal controls and whether this was merely a failure of oversight—or something closer to corporate fraud.