IndusInd Bank probes yet another accounting issue

IndusInd Bank’s internal audit department is currently examining a series of past accounting reversals that were first raised in a whistle blower letter to the Reserve Bank of India (RBI) and the bank's board of directors, two people with direct knowledge of the developments told ET.

These are different from the issues the bank has declared thus far. They involve ‘other assets’ and ‘other liability’ accounting entries that figure under operating expenses in the bank’s financial statements. It is unclear which years the matter pertains to.

The letter was delivered to the bank’s senior management a few days before RBI approved a limited, one-year extension for chief executive Sumant Kathpalia—on March 6. The lender highlighted anomalies in its derivatives portfolio on March 10 to the stock exchanges, causing a 27% erosion in the stock’s value overnight.



According to a senior bank official who spoke to ET on the condition of anonymity, the same whistleblower letter also raised concerns about a Rs 600-crore discrepancy in the accrual of interest income in the bank’s microfinance portfolio, and an instance of inappropriate relationship between a senior executive and an employee, who was sacked and subsequently rehired by this executive.

A bank spokesperson did not respond to requests for comment.

After ET first reported on April 22 that the bank had engaged an audit firm to investigate a Rs 600- crore discrepancy in recognising interest income in the lender’s microfinance portfolio, IndusInd said in an exchange filing that it had engaged a firm to help its internal audit team after issues in this portfolio were brought to its attention.

This is the first time it is coming to light that a whistle blower letter accelerated the disclosure of discrepancies in the forex derivatives portfolio, which eventually led to the exits of the bank’s chief executive and deputy CEO, and will result in IndusInd making a Rs 1,960-crore provision in the fourth quarter. The lender is yet to declare its results.

The whistle blower, a senior finance professional within the bank, later met with the chief executive to personally discuss the charges, said the person cited. The letter prompted joint auditors Chokshi & Chokshi and MSKA & Associates to request a forensic audit of the derivatives portfolio as well as the Rs 600-crore discrepancy in the bank's microfinance portfolio, said the first person quoted earlier.

Currently, the bank’s internal audit team, with support from EY, is investigating both the microfinance accounting gaps and the entry reversals, said the person.

The board has also asked EY to conduct a deeper examination of the microfinance issue, including a review of potential non-performing asset (NPA) concerns and any indications of collusion between IndusInd’s senior leadership and the management of its microfinance subsidiary, another bank official said.

Grant Thornton, the primary forensic auditor, delivered its report on the evening of April 26. The next day, IndusInd Bank disclosed that the cumulative adverse accounting impact on its earnings would be Rs 1,960 crore, as of March 31, 2025. Shortly after, deputy CEO Arun Khurana and CEO Sumant Kathpalia resigned in quick succession.