Shares of IndusInd Bank, the private sector lender, saw a slight recovery in early trade on Wednesday, March 12, rising 5.9% to ₹694.70 per Indusind bank share price on the NSE. This rebound came a day after the stock plunged 27% due to reports of an accounting discrepancy in its derivatives portfolio.
Accounting Discrepancy: What Happened?
IndusInd Bank CEO and Managing Director, Sumant Kathpalia, revealed on Tuesday that the accounting issue was first identified between September and October last year. The bank had provided a preliminary update to the Reserve Bank of India (RBI) last week, and a final report from an external agency is expected by early April 2025.
In a stock exchange filing on Monday, the bank disclosed that the discrepancy in its derivatives portfolio could negatively impact its net worth by approximately 2.35% as of December 2024, based on its internal review. Analysts estimate this to be around ₹2,100 crore in absolute terms.
To ensure accuracy, the bank has appointed an external agency to independently review and validate the findings.
IndusInd Bank’s Response and Financial Position
Despite the setback, Kathpalia reassured investors, stating that the bank’s profitability and capital adequacy remain strong enough to absorb this one-time impact. He emphasized that the issue was identified by the bank itself, highlighting that IndusInd Bank has sufficient reserves and capital to handle the situation.
During an analyst call late Monday night, Kathpalia provided further insights, explaining that the discrepancy had been accumulating over a period of 5-7 years before April 1, 2024. Interestingly, the issue remained undetected despite multiple audits, including internal, statutory, and RBI audits.
The bank began reviewing its internal trade book after an RBI circular in September 2023, which mandated that internal trade in derivatives should be discontinued from April 1, 2024.
“By October, we started noticing discrepancies in our derivatives business, which led us to hire an external agency for an in-depth review. We expect the final findings by the end of March or early April,” Kathpalia explained.
Impact on CEO’s Tenure
When asked about whether this discrepancy influenced his re-appointment as MD & CEO, Kathpalia admitted, “Of course, this would have a bearing because the RBI was aware of the issue.”
Last week, the RBI granted Kathpalia only a one-year extension until March 23, 2026, instead of the three-year term initially proposed by the bank’s board.
Looking Ahead
Investors and analysts remain cautious as they await further clarity from the external agency’s report. While IndusInd Bank’s management remains confident in absorbing the financial impact, the incident has raised concerns over risk management and corporate governance.
For now, all eyes are on the bank’s Q4FY25 results, which may reflect the impact of the accounting lapse on earnings and future growth prospects.
