IndusInd Bank Ltd., one of India’s leading private sector lenders, has come under fresh regulatory scrutiny after the Central government ordered a comprehensive investigation into its affairs by the Serious Fraud Investigation Office (SFIO). The move follows concerns raised by statutory auditors and forensic reports pointing to significant accounting irregularities over several financial years.
The decision comes at a time when the Mumbai Police’s Economic Offences Wing (EOW) is preparing to close its preliminary enquiry into the bank’s affairs, having found no evidence of fund siphoning or diversion warranting criminal prosecution.
Government Cites Audit Findings and ADT-4 Filings
According to sources familiar with the matter, the Ministry of Corporate Affairs (MCA) has invoked its powers after examining multiple ADT-4 filings submitted by the bank’s statutory auditors under Section 143(12) of the Companies Act, 2013. One such filing, dated May 12, 2025, flagged accounting discrepancies amounting to approximately ₹1,959.78 crore, spanning the period from FY2015-16 to FY2023-24.
The government noted that the issues highlighted were not limited to accounting errors but also indicated weaknesses in internal control systems, raising concerns about governance and financial reporting standards at the bank.
Forensic Reports Submitted to RBI and SFIO Also Considered
In addition to audit filings, the Central government has taken into account forensic monitoring reports (FMRs) submitted by IndusInd Bank to the Reserve Bank of India (RBI) and the SFIO. Officials said these reports, when viewed collectively, warranted a deeper investigation in the interest of the public.
“Based on the ADT-4 filings and forensic monitoring reports submitted to the RBI and SFIO, the Central government has formed the opinion that an investigation into the affairs of the company is necessary in the public interest,” a source said.
IndusInd Bank did not immediately respond to requests for comment.
Scope of the SFIO Investigation
The SFIO has been mandated to conduct a wide-ranging probe into the bank’s financial and accounting practices. The investigation will examine findings contained in ADT-4 forms, forensic audit reports, internal audit and inspection reports, as well as inputs from other regulatory and enforcement agencies.
The agency will specifically look into allegations of manipulation of books of account, creation of fictitious accounts, misclassification or conversion of assets, and any deliberate misrepresentation in the bank’s financial statements. Transactions related to loans and advances, investments, related-party transactions, and asset-liability management will also come under scrutiny.
SFIO has additionally been directed to identify any instances of fund diversion or routing, along with the beneficiaries, if such activities are established.
EOW Finds No Criminality
Separately, the Mumbai Police’s Economic Offences Wing, which initiated a preliminary enquiry in August 2025, concluded that it did not find evidence of fund siphoning or diversion that would justify registration of a First Information Report (FIR).
Before formally closing the enquiry, however, the EOW has sought clarifications from the RBI on whether the regulator was previously aware of the accounting and hedging-related issues flagged later, and how these were addressed from a supervisory standpoint.
Derivative Losses and Misclassification Disclosed by Bank
In March 2025, IndusInd Bank disclosed lapses amounting to nearly ₹1,979 crore in its derivatives portfolio. The bank also acknowledged misstatements, including ₹674 crore recorded as microfinance income, ₹595 crore shown as unsubstantiated balances under ‘other assets’, and ₹172.6 crore misclassified as fee income.
The lender stated that these issues could have an impact of around 2.35% on its net worth as of December 2024, but maintained that its capital adequacy and profitability were sufficient to absorb the one-time impact.
Former Top Executives Questioned
Following directions from the RBI, PwC reviewed derivative transactions undertaken between April 2023 and June 2024, while Grant Thornton conducted a forensic audit covering FY2016 to FY2024. The Grant Thornton report is understood to have identified around 25 individuals linked to the lapses.
As part of the EOW enquiry, former CEO Sumant Kathpalia, former CFO Govind Jain, former deputy CEO Arun Khurana, and several suspended finance department employees were questioned.
Broader Governance Concerns
Market experts believe the IndusInd Bank episode has once again brought corporate governance standards, the role of auditors, and regulatory oversight in the banking sector under sharp focus. The outcome of the SFIO investigation is expected to have implications not just for the bank, but for the broader financial system as well.
