IndusInd Bank: RBI Expands Investigation into Derivative Exposures Following Discrepancies
Moneylife Digital Team 13 March 2025
The Reserve Bank of India (RBI) has widened its investigation into derivative exposures of multiple private and state-run banks following significant accounting discrepancies revealed by IndusInd Bank. This expanded probe comes after IndusInd Bank disclosed lapses in its derivatives accounting that could potentially impact its net worth by about Rs1,530 crore.
 
According to a report from Reuters, the central Bank has requested detailed information from various lenders regarding their overseas borrowings, deposits, and foreign exchange hedge positions. This sector-wide assessment appears to be a direct response to the issues identified at IndusInd Bank, which is India's fifth-largest Bank.
 
The accounting discrepancies at IndusInd Bank were initially detected around September-October 2023 during an internal review of processes related to parts of its derivative portfolio. The Bank has estimated an adverse impact of 2.35% on its net worth. This review was conducted following the RBI's directions on the investment portfolio of lenders, issued in September 2023, specifically relating to 'other asset and other liability' accounts of the portfolio.
 
IndusInd Bank’s managing director and chief executive officer (MD&CEO) Sumant Kathpalia addressed the situation, stating that the Bank had provided a preliminary update to the RBI last week. He assured stakeholders that the Bank has sufficient reserves and capital to cover the discrepancy. The final assessment is expected by early April when an external agency appointed by the Bank completes its report.
 
This directive came shortly after the RBI granted a one-year extension to Mr Kathpalia's reappointment as CEO. His term, initially set to end on 24 March 2025, has been extended until March 2026. 
 
During an analyst call, Mr Kathpalia had acknowledged that the RBI might have concerns regarding his leadership style, noting that the central Bank was "uncomfortable" with his approach. 
 
In a related development, the RBI has instructed the board of IndusInd Bank to search for external candidates for both the chief operating officer (COO) and CEO positions. The central bank has reportedly asked the IndusInd Bank board to nominate two candidates who are not currently part of the financial institution.
 
The revelation of accounting discrepancies triggered a significant market reaction, with IndusInd Bank's stock plummeting 27% on 11 March 2025. However, the stock rebounded the following day, settling 4% higher and leading the Nifty 50 gainers. The expanded RBI investigation signals increased regulatory scrutiny of banking practices, particularly in derivatives accounting, and may lead to broader reforms in the sector's risk management and accounting procedures. 
 
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Comments
r_ashok41
5 days ago
one needs to strengthen our financial system.Off and on these types of issues keep cropping up.
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