In a significant shake-up at IndusInd Bank, Managing Director and CEO Sumant Kathpalia has resigned amidst ongoing investigations into serious accounting discrepancies related to the bank's derivatives portfolio. His resignation, effective immediately as of April 29, 2025, follows the resignation of Deputy CEO Arun Khurana just a day earlier, further raising concerns about governance within the bank.
The turmoil at IndusInd Bank comes after an independent investigation revealed that incorrect accounting practices had resulted in a staggering cumulative loss of Rs 1,959.98 crore as of March 31, 2025. This figure was confirmed by a report submitted to the bank's board on April 26, 2025, which was commissioned after the bank's internal review in March 2025 uncovered significant discrepancies.
In his resignation letter, Kathpalia expressed his commitment to accountability, stating, "I undertake moral responsibility, given the various acts of commission/omission that have been brought to my notice. I would request that my resignation be taken on record at the close of working hours today." His departure marks a critical point for the bank, which has seen its share price plummet nearly 25%, dropping from Rs 900 to Rs 686 per share following the revelation of these financial issues.
The Reserve Bank of India (RBI) has been closely monitoring the situation. In March, the RBI granted Kathpalia only a one-year extension on his tenure, a decision influenced by concerns regarding the bank's governance and financial reporting practices, despite the board's request for a three-year term. This limited extension reflected the RBI's apprehensions about the bank's internal controls.
As the fallout from these revelations continues, IndusInd Bank has engaged PricewaterhouseCoopers (PwC) to quantify the losses first identified in October 2024. Additionally, following the RBI's directive, global audit firm Grant Thornton Bharat has been appointed to conduct a forensic investigation to ensure a thorough assessment of the situation.
In light of Kathpalia's resignation, the bank’s board has sought approval from the RBI to establish a 'Committee of Executives' to oversee operations during this transitional period until a permanent CEO is appointed. This committee will be led by Soumitra Sen, Head of Consumer Banking, and Anil Rao, Chief Administrative Officer. The oversight committee will include the chairman of the board and chairs of the audit, compensation, and risk management committees.
Reports indicate that the accounting discrepancies stem from a dual accounting practice that the bank had used for its derivative transactions over the past six to seven years. This practice allowed the bank to defer losses from internal trades while prematurely booking gains from external transactions, leading to significant misstatements in their financial reporting.
As a result of these discrepancies, the bank is expected to reflect a minor loss in its fourth-quarter financial statements, which would be a stark contrast to the anticipated profit of Rs 1,800 crore. The derivative loss and additional provisions for non-performing assets (NPAs) in the microfinance loan sector are expected to impact the bank's profitability significantly.
The RBI has indicated that it does not plan to implement regulatory changes across the banking industry as a result of the IndusInd Bank crisis, emphasizing that it will not penalize other institutions for the failures of one. An RBI source stated, "We would not be punishing others for someone else’s ingenuity.”
In the wake of these developments, analysts are keeping a close eye on IndusInd Bank's stock performance. Following the announcement of Kathpalia's resignation, shares of the bank ended 0.84% higher at ₹837.50 apiece on the National Stock Exchange (NSE), suggesting that some investors may view the leadership change as a positive step toward addressing the underlying issues.
As the bank navigates this challenging period, it remains to be seen how the new leadership will address the ongoing investigations and restore confidence among investors and customers alike. The situation underscores the importance of transparency and accountability in financial institutions, especially in light of recent revelations regarding governance failures.
In summary, the resignation of Sumant Kathpalia marks a critical juncture for IndusInd Bank as it grapples with serious financial discrepancies and seeks to rebuild its reputation in the banking sector. The coming months will be crucial as the bank implements corrective measures and works to regain the trust of its stakeholders.
