Incorrect accounting of derivatives trades led to IndusInd Bank fiasco: GT

Mumbai, Apr 27, 2025

Cumulative adverse accounting impact on P&L at Rs 1,960 crore as of March 31, 2025

IndusInd Bank on Sunday disclosed to the exchanges that, according to independent professional firm Grant Thornton, incorrect accounting of internal derivative trades by the bank — particularly in the cases of early termination — led to notional profits, which resulted in accounting discrepancies.

Grant Thornton was appointed by IndusInd’s board to find out the root cause behind the discrepancy in the derivatives portfolio, among other things.

Additionally, the report examined the roles and actions of key employees in this context. The board is taking necessary steps to fix accountability of persons responsible for lapses and will re-align roles and responsibilities of the senior management.

Grant Thornton submitted its report to the banks’ board on April 26.

According to the firm’s assessment, the cumulative adverse accounting impact on the profit and loss account of the bank as of March 31, 2025, would be ₹1,959.98 crore.

“The bank will appropriately reflect the resultant impact of the accounting discrepancies in the financial statements for financial year 2024-25 and take measures to strengthen internal controls accordingly,” the lender said.

It added that it has already discontinued internal derivative trades from April 1, 2024.

On April 15, the bank disclosed that PwC, which was engaged by its board to validate the findings of its internal review, identified discrepancies in its derivatives portfolio and estimated a negative impact of ₹1,979 crore as of June 30, 2024.

Accordingly, based on PwC’s report, the bank stated that the discrepancies would have an adverse post-tax impact of 2.27 per cent on its net worth as of December 2024. At the end of the December quarter, the banks’ net worth was ₹65,102 crore.

Brokerages weighed positively on PwC’s report as the impact of discrepancies in the derivatives portfolio was marginally lower than the banks’ internal review findings.

According to PwC’s report, the negative impact on net worth was ₹1,520 crore as of the December quarter. But the bank’s internal review findings said the negative impact was estimated to be ₹1,580 crore.

The whole saga unfolded on March 10 when the bank disclosed to the exchanges that in an internal review it had found discrepancies in its derivatives portfolio. This, it said, would have an adverse impact of 2.35 per cent on its net worth as of December 2024.

The bank also stated that it appointed PwC to review the estimate of the loss in the derivatives portfolio.

Later, the bank disclosed that it appointed Grant Thornton to conduct a comprehensive investigation to identify the root cause of the discrepancies in the derivatives portfolio of the bank.

Just a week before the bank’s disclosure on discrepancy in the derivatives portfolio, the Reserve Bank of India (RBI) granted Sumant Kathpalia, the current managing director (MD) and chief executive officer (CEO), only a year’s extension.

This was despite the bank’s board recommending a three-year reappointment.

Kathpalia, in an analysts’ call, said the discrepancies found in the derivatives portfolio could be a reason why the RBI gave him only a one-year extension.

Kathpalia has assured that IndusInd Bank will report net profit in the fourth quarter (Q4) as well as for the full financial year (FY25). This is despite the dent on the bottom line due to discrepancies in the derivatives portfolio.

Meanwhile, the bank, last week, disclosed to the exchanges that its internal audit department is conducting a review of the banks’ microfinance business. This is to examine certain concerns which have been brought to its attention and EY is assisting the department in reviewing certain records of the bank.

As of the December quarter, the bank’s microfinance (MFI) portfolio stood at ₹32,564 crore, accounting for 9 per cent of its total loan book.

The MFI segment of the bank has been under stress in line with the entire MFI industry.

In Q3FY25, the bank reported higher slippages of ₹2,200 crore. A major portion of this came from the MFI book.

[The Business Standard]