IndusInd Bank, one of India’s leading private sector banks, has recently come under scrutiny following the revelation of significant derivative losses amounting to ₹1,577 crore. This financial discrepancy, which accounts for 2.35% of the bank’s net worth, has raised serious concerns about transparency, governance, and risk management within the institution.
What Led to the Fiasco?
The issue stems from discrepancies in the accounting of forex derivative transactions over the past 5-7 years. While the bank’s treasury desk followed mark-to-market (MTM) accounting, reflecting gains and losses immediately, the liability desk used accrual accounting, deferring losses over multiple years. This mismatch artificially boosted short-term profits while concealing actual losses. The problem was exposed after a 2023 Reserve Bank of India (RBI) directive mandated MTM accounting for all derivatives, bringing deferred losses to light.
Who Is to Blame?
The fiasco has spotlighted lapses in governance and oversight. The abrupt resignation of Chief Financial Officer Gobind Jain and the sale of shares worth ₹157 crore by CEO Sumant Kathpalia and Deputy CEO Arun Khurana have further fueled speculation about internal mismanagement. Critics argue that the bank’s board and auditors failed to detect and address these issues earlier, raising questions about accountability.
Should Customers Be Worried?
Despite the turmoil, the RBI has reassured customers that IndusInd Bank remains well-capitalized, with a capital adequacy ratio of 16.46% and a liquidity coverage ratio of 113%, both exceeding regulatory requirements. The central bank has directed the institution to implement corrective measures and has emphasized that there is no immediate cause for alarm regarding the safety of customer deposits.
The IndusInd Bank fiasco serves as a wake-up call for the banking sector, highlighting the need for stricter regulatory oversight and improved governance practices. Stay tuned for further updates on this developing story.
