IndusInd Bank goes for ‘comprehensive’ forensic audit

Private sector lender IndusInd Bank has initiated a comprehensive “forensic investigation” of the entire bank, following a Reserve Bank of India (RBI) directive to appoint a new firm to investigate the discrepancies, two people aware of the development told ET.

The new agency will also examine if senior management was responsible for, or aware of the issues that led to discrepancies in the derivatives portfolio, according to one of the sources cited above.

“The scope of this new investigation is much wider and deeper, covering the entire bank, and will also address any lapses in accounting, including holding management accountable for any deviations that come to light,” an official said.

The RBI and IndusInd Bank did not respond to ET’s queries. Separately, in a statement, IndusInd Bank said media reports that RBI had asked its CEO Sumant Kathpalia and deputy CEO Arun Khurana to step down are ‘factually incorrect’.

Late Thursday evening, the lender informed stock exchanges that its board has decided to appoint an independent professional firm to conduct a comprehensive investigation. The probe will aim to identify the root cause of the discrepancies and assess the correctness of the accounting treatment of derivatives contracts in line with prevailing accounting standards.

The bank informed the exchanges the agency’s report will provide guidance, identify any lapses, and establish accountability for the discrepancies. Sources suggest that the RBI’s directive for a bank-wide forensic investigation is partly due to IndusInd Bank’s ongoing regulatory issues since CEO Sumant Kathpalia’s tenure began.In December 2024, the regulator imposed a penalty on the bank for failing to comply with deposit interest rate guidelines. During its investigation, the RBI found that the bank had opened savings accounts for ineligible individuals.In July 2022, a ‘1-crore fine was imposed on the bank for not following Know Your Customer (KYC) rules.

In November 2021, IndusInd Bank revealed that it had unintentionally disbursed approximately 84,000 loans without customer consent due to a technical error.

Truncated Terms

The RBI granted only a one-year extension to chief executive Sumant Kathpalia, instead of three years sought by the lender. Shortly after, the bank disclosed the accounting discrepancies in its derivatives portfolio, which is expected to result in a ‘1,600-crore impact on its balance sheet.

The discrepancies were identified during an internal assessment of the bank’s processes related to its derivatives portfolio, in line with the September 2023 RBI guidelines on classification, valuation, and operation of investment portfolios.

Kathpalia has earlier publicly stated that the RBI is unhappy with his leadership.

“I don’t know what is the rationale for them (RBI) to give me one year, but I think they’re uncomfortable with the way my leadership skills of running the bank, and we have to respect that,” he had said in an analyst call on March 10.

On March 15, ET had also reported that, the joint auditors of IndusInd Bank – MP Chitale & Co and MSKA & Associates – wrote to the bank’s board requesting a forensic audit of the derivatives portfolio.

The bank had earlier hired PwC to conduct an accounting review of its derivatives portfolio, but its report has not yet been released.