The investigation into accounting irregularities at private sector lender IndusInd Bank has intensified, with the Serious Fraud Investigation Office (SFIO) stepping up scrutiny of the bank’s financial practices. The SFIO, which functions under the Ministry of Corporate Affairs (MCA), has held interactions this week with senior officials of the bank and is preparing to seek detailed, point-wise clarifications in writing on specific accounting issues identified earlier.
The development comes at a time when the Economic Offences Wing (EOW) of Mumbai Police is preparing to close its preliminary probe after finding no direct evidence of fund siphoning or diversion outside the bank. While the EOW inquiry focused on potential criminal misappropriation, the SFIO probe is centred on violations of accounting norms, governance lapses and possible contraventions of corporate law.
In a regulatory filing, IndusInd Bank said that under the Reserve Bank of India’s (RBI) Master Directions on Fraud Risk Management for Commercial Banks, dated July 15, 2024, any fraud involving ₹1 crore or more must be reported not only to the RBI but also to the SFIO. In compliance with these norms, the bank had, on June 2, 2025, informed the SFIO about accounting issues related to internal derivative trades, certain unsubstantiated balances under “other assets” and “other liabilities”, and irregular recognition of interest and fee income in its microfinance business.
Probe ordered by MCA
Earlier reports had indicated that the Ministry of Corporate Affairs had directed the SFIO to investigate IndusInd Bank following serious observations made by statutory auditors and forensic audit reports. These reports flagged concerns of public interest, noting that certain accounting treatments adopted by the bank were inconsistent with prescribed accounting standards and regulatory guidelines.
While the MCA-directed SFIO investigation continues, officials familiar with the matter said the parallel probe by Mumbai Police’s EOW has not, so far, yielded any evidence of money being siphoned off or diverted for non-banking purposes. As a result, the EOW is now in the process of winding up its initial inquiry, even as regulatory and forensic scrutiny remains firmly in place.
Heavy loss in Q4FY25
The accounting lapses have had a significant impact on IndusInd Bank’s financial performance. The bank reported a net loss of ₹2,329 crore in the January–March quarter of FY25 (Q4FY25). The loss was primarily driven by a sharp increase in provisions and the reversal of income entries linked to derivatives and microfinance operations that had earlier been recognised incorrectly.
These corrections followed an internal and external review of the bank’s books, which revealed that several income items did not meet recognition criteria under applicable accounting norms.
Long-standing issues in derivatives portfolio
In March 2025, IndusInd Bank disclosed that an internal review had uncovered serious accounting discrepancies in its derivatives portfolio. This prompted the bank to appoint external agencies to conduct a forensic examination to assess the magnitude and root cause of the problem.
The review found that between FY16 and FY24, the bank had entered into multiple derivative transactions whose accounting treatment was not in line with prescribed accounting standards. As a result, notional income was recognised in the profit and loss account over several years, with corresponding amounts shown as assets on the balance sheet.
In FY25, the bank wrote off ₹1,959.98 crore of accumulated notional income arising from these transactions. In addition, it adjusted ₹595 crore of unsubstantiated balances reflected under “other assets” and “other liabilities”.
Incorrect recognition in microfinance income
The forensic review also identified irregularities in the bank’s microfinance portfolio. It found that ₹673.82 crore of interest income and ₹172.58 crore of fee income had been recognised incorrectly. Reversal of these entries alone had a negative impact of ₹422.56 crore on the bank’s Q4FY25 results.
Further, certain microfinance loans had been wrongly classified as standard assets, with interest income continuing to be booked on them. After correcting the asset classification, the bank made provisions of 95% on these loans, amounting to ₹1,791 crore. The combined impact of higher provisioning and income reversals resulted in an adverse effect of nearly ₹1,969 crore on the profit and loss account as of March 31, 2025.
Following these developments, the bank’s then Managing Director and CEO, Sumant Kathpalia, and Deputy CEO, Arun Khurana, stepped down, taking responsibility for losses of around ₹1,960 crore linked to the derivatives portfolio. The current management is also examining the possibility of clawback of bonuses paid to former senior executives as part of its governance and accountability measures.
