IndusInd Bank is facing serious scrutiny as it initiates a second forensic audit to investigate a ₹600 crore discrepancy in its microfinance portfolio. This decision follows the discovery of irregularities during the bank's statutory audit for the previous financial year, leading auditors to recommend a detailed investigation under Section 143(12) of the Companies Act, 2013.
On April 22, 2025, IndusInd Bank's share price experienced a significant drop, falling as much as 6.3% to ₹775.4 per share amid reports of the ongoing audit. The stock, which had recently seen a five-day rally, has now plummeted 16.6% year-to-date, reflecting mounting investor concerns over the bank's financial stability.
The forensic audit will be conducted by Ernst & Young (EY), which is recognized for having India's largest forensic practice. EY's investigation aims to determine whether the discrepancy resulted from operational failures or fraudulent activities, and to establish accountability within the bank. Sources indicate that the issue appears to be confined to the last financial year, specifically within the second and third quarters.
In addition to EY's investigation, Grant Thornton Bharat (GTB) is already conducting a forensic audit into irregularities related to IndusInd's forex derivatives portfolio. This parallel audit underscores the bank's ongoing challenges with its financial reporting and regulatory compliance.
IndusInd Bank disclosed on April 15, 2025, that PwC, hired to review the derivatives portfolio, estimated potential losses from accounting anomalies at ₹1,979 crore, significantly higher than initial estimates of ₹1,600 crore. The report indicated that these discrepancies could adversely affect the bank's net worth by approximately 2.27% as of December 2024.
The adverse impact of these accounting issues has raised alarms among investors, with the bank quantifying the effect based on its June 2024 profit and loss statement. The bank's net worth as of December 2024 was reported at ₹65,102 crore, indicating that the financial implications of these discrepancies could be severe.
During the ongoing statutory audit, the auditors flagged the discrepancies, prompting the recommendation for a forensic audit. The findings are expected to have serious implications for the bank's financial reporting and regulatory compliance.
IndusInd Bank's recent financial performance has also raised eyebrows. In the third quarter of FY25, the bank reported a net profit of ₹1,402.3 crore, a sharp decline of 39% from ₹2,301 crore in the same quarter the previous year. The bank's net interest income fell by 1.3% year-on-year to ₹5,228.1 crore, compared to ₹5,295.6 crore a year earlier.
Despite these challenges, the bank's deposits grew by 0.4% quarter-on-quarter to ₹4,11,140 crore, showing some resilience in its overall operations. However, the current account savings account (CASA) ratio fell to 32.8% from 37.9% a year ago, indicating potential liquidity issues.
As the situation unfolds, IndusInd Bank has appointed Santosh Kumar as Deputy CFO, effective April 18, 2025, amid ongoing management changes. Kumar will oversee finance and accounts functions until a full-time CFO is appointed, following the resignation of former CFO Gobind Jain for personal reasons.
Investor sentiment remains shaky as the bank navigates these turbulent waters. The stock has gained 17% in the past month, but it still lags behind the benchmark Nifty50 index, which has advanced by 2.2% year-to-date.
The ongoing audits and the bank's efforts to rectify its financial discrepancies will be closely watched by investors and regulators alike. As the audits progress, the implications for IndusInd Bank's operational integrity and financial health will become clearer.
In summary, the combination of a second forensic audit, the ongoing scrutiny of its forex derivatives portfolio, and declining financial performance presents a challenging landscape for IndusInd Bank. Stakeholders are left to ponder the potential ramifications as the bank works to restore confidence and address the issues at hand.
