The management’s pledge did not stop the wild fall of shares, which plummeted more than 27% on the bourses. IndusInd Bank addressed the repercussions of a Rs 2,100 crore accounting error on Tuesday, claiming it had sufficient reserves and capital to cover it.
According to Sumant Kathpalia, CEO and Managing Director of IndusInd Bank, the accounting error was discovered in September or October of last year, and the bank provided the RBI with an initial update on it last week. The precise figure won’t be known until early April, when the external firm the bank hired completes its report.
Private sector lender IndusInd Bank said in a stock exchange statement on Monday that it has discovered significant disparities in its derivatives portfolio that, according to its internal investigation, might negatively affect roughly 2.35 percent of the bank’s net worth as of December 2024. In absolute terms, analysts estimate the disparity to be Rs 2,100 crore.
Concurrently, the bank has designated an outside organization to impartially examine and confirm the internal results. “The bank’s capital adequacy and profitability are strong enough to withstand this one-time effect. The bank found the problem… “The bank has sufficient capital and reserves to handle this,” Mr. Katpalia stated.
On the BSE, IndusInd Bank’s shares fell 27.17% to settle at Rs655.95. The stock had fallen 28% from Monday’s closing price of Rs900 to its one-year low of Rs649 a share during the day’s trading. Mr. Kathpalia stated on a late-night analyst call on Monday that the derivative portfolio difference had been built up in the book over the course of five to seven years before April 1, 2024.
Despite numerous audits, including internal, statutory, and compliance audits as well as one by the RBI, the disparity in IndusInd Bank’s treasury operations remained undetected. He said that following the RBI circular in September 2023, which stipulated that internal trade in derivatives was to cease on April 1, 2024, the bank began examining its internal trade book.
“..We started observing discrepancies in our (derivatives) business in October, and then we hired external agency to review our business. That is why we are comfortable that by March end or early April, we (external agency report) should be able to identify the gaps,” Mr Kathpalia said. According to Mr. Kathpalia, last week, IndusInd Bank provided the financial regulator, the RBI, with a “preliminary update” regarding this disparity.
“Of course this would have a bearing because they were aware of the issue,” Mr. Kathpalia responded when asked on the analyst call if this disparity had affected his re-appointment as MD & CEO.
Last Monday, the RBI granted Mr. Kathpalia a one-year extension till March 23, 2026, instead than the three years the bank’s board had suggested. “I don’t know what’s the rationale for them to give me 1 year. But I think they are uncomfortable with the way my leadership skills of running the bank is and we have to respect that. This is a litmus test for the bank, from a succession point we see how to take the bank forward. I don’t think the BAU (business as usual) of the bank will suffer, I don’t think the growth agenda will get off the track,” Katpalia said.
