IndusInd Bank Under Pressure To Clarify Rs 2,000 Crore Derivatives Loss

IndusInd Bank is facing increased regulatory and audit scrutiny over a significant misstatement in its foreign exchange derivatives accounting, which has resulted in estimated losses of nearly Rs 2,000 crore. According to a report by The Economic Times, the bank’s statutory auditors have asked the management to clarify whether the matter constitutes a discrepancy, an error, or a possible fraud.

So far, the private sector lender has maintained that the issue is a "discrepancy," as described in its disclosures to exchanges and credit rating agencies. However, this explanation may no longer suffice, particularly as auditors have a legal duty to report potential fraud under the Companies Act, 2013. A formal classification as fraud, especially involving such a large sum, would require immediate regulatory disclosures and may trigger further investigation.

Classification Of The Issue

The final decision on how to classify the issue lies with the bank’s board, chaired by Sunil Mehta, and its audit committee, led by Bhavna Doshi. Their assessment will influence how the matter is reflected in the bank’s upcoming annual financial statements.

The discrepancy reportedly stems from inconsistent accounting methods applied to internal and external forex transactions, one using accrual and the other mark-to-market valuation. This led to inflated profits in earlier years and postponed recognition of losses.

The matter escalated following the resignation of CEO Sumant Kathpalia and Deputy CEO Arun Khurana, both of whom stepped down after a forensic review by Grant Thornton raised concerns over potential insider trading.

In response to the turmoil, the Reserve Bank of India approved an interim leadership structure, while Moody’s downgraded the bank’s standalone financial rating, citing governance lapses and inadequate internal controls. The case may serve as a benchmark for how similar issues are handled in the Indian banking sector.

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