On May 22, IndusInd Bank, India’s fifth-largest private lender, shocked the markets by reporting its first quarterly loss in nearly two decades. But the real story goes deeper—an unravelling tale of accounting discrepancies, suspected fraud, insider trading, and governance failures that has put the bank’s credibility and future under sharp regulatory scrutiny.
From Legacy to Liability: The Cracks Begin to Show
IndusInd Bank, once a shining symbol of India’s post-liberalisation banking reforms, finds itself grappling with a crisis that threatens not just its reputation, but its core operating model. Promoted by the influential Hinduja family, the bank had never reported a net loss in its modern history until now. The ₹2,328 crore loss in Q4 of FY24 was not due to market forces alone, but a cocktail of internal chaos: misreported interest income, inaccurate derivative accounting, and massive holes in its microfinance portfolio.
The Reserve Bank of India (RBI) had sensed trouble as early as March, denying a three-year CEO extension to Sumant Kathpalia. By April, both Kathpalia and deputy CEO-turned-CFO Arun Khurana had resigned. Days later, the Securities and Exchange Board of India (SEBI) barred them from accessing capital markets over alleged insider trading. These exits followed a troubling pattern—Gobind Jain, the CFO at the time when the discrepancies surfaced, also exited abruptly in January.
What was once viewed as a bank built on solid foundations now appears riddled with oversight gaps and red flags. As financial consultant Ashvin Parekh noted that every line of defence at IndusInd Bank seems to have failed to detect these discrepancies.
The Derivatives Debacle and the Governance Collapse
At the heart of the fiasco lies a complex derivatives portfolio used to hedge foreign currency liabilities. Derivatives, meant to protect banks from currency volatility, turned into a liability. Internal reviews conducted under new RBI norms in late 2023 revealed alarming “gaps” in how IndusInd positioned and accounted for these instruments. A forensic review launched by the bank found unhedged exposures, mismatches, and valuation inconsistencies, culminating in a loss of nearly ₹1,960 crore.
The internal control breakdown was not isolated. The microfinance vertical—Bharat Financial Inclusion Ltd—was found to have overstated ₹674 crore in interest income and had ₹595 crore in unexplained assets on its books. Both issues were “closed” as of January, according to the bank, but triggered more concern than confidence. Experts say the bank’s operating culture fostered recklessness. Such risk-taking, without sufficient provisioning or internal control, invited crisis when market conditions turned hostile.
Reckoning, Reputation, and the Road to Redemption
In the aftermath of the financial storm, IndusInd Bank’s senior management is in disarray. The share price has plunged nearly 50% from its 52-week high. The IIFL estimates a ₹4,700 crore cumulative hit to the bank’s books. The Hindujas, who had pledged IndusInd shares to finance the Reliance Capital deal, are also under pressure to stabilise valuations.
Yet, there’s no immediate threat to solvency. With a healthy capital adequacy ratio of 16.24% and over ₹4 lakh crore in customer deposits, the RBI and the bank have maintained that its fundamentals remain strong. But confidence is a fragile currency, and reputational damage often runs deeper than balance sheets reveal.
Chairman Sunil Mehta has pledged tighter controls and a cultural overhaul. But rebuilding trust will take more than boardroom promises. Whistleblower systems, external oversight, and transparent reporting need to become core to the bank’s DNA. Experts argue that reforms must begin with an honest internal reckoning, not just managerial shuffles.
About the author – Prakriti Jha is a student at National Forensic Sciences University, Gandhinagar, currently pursuing B.Sc. LL.B (Hons.) with a keen interest in the intersection of law and data science. She is passionate about exploring how legal frameworks adapt to the evolving challenges of technology and justice.