IndusInd suspects fraud, sees steep Q4 loss
Summary
The board has decided to take “necessary steps”, including reporting to regulatory authorities and investigative agencies, and fix accountability. The bank has been in a turmoil after incorrect accounting of derivative trades left a ₹1,959 crore hole in its books.
IndusInd Bank Ltd on Wednesday said its board suspects fraud by key employees in its accounting and reporting departments that led to the recent financial blow-ups at the private sector lender. The bank sank to its biggest quarterly loss of ₹2,329 crore, as it provided for various discrepancies that surfaced in the last quarter.
The lender said its board was not apprised of the multiple accounting lapses, even at the time of approving financial results. The suspicion of fraud comes after receiving investigation reports on accounting of internal derivative trades, “certain unsubstantiated balances in other assets and other liabilities accounts of the bank," and microfinance interest income, the bank said in a statement.
The board came to know of the irregularities in March 2025, chairman Sunil Mehta said in an analysts' call, adding it will approach regulators and investigators. Steps have been taken to address the areas of concern, rectify any lapses in systems and processes and strengthen internal controls, Mehta added.
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“The board and the management set forth its desire of maintaining trust in the institution by aspiring for and implementing higher standards of transparency and compliance," Mehta said, adding it is working with the management and all relevant stakeholders so that the bank can be forthcoming in “highlighting any irregularities which need to be addressed". It is also assessing roles and responsibilities and fixing staff accountability under legal and code of conduct requirements, he said.
IndusInd's internal audit department said on Tuesday that ₹172.58 crore was incorrectly recorded as fee income in the microfinance business over three quarters ending 31 December, and reversed in the fourth quarter (Q4) of fiscal year 2025 (FY25).
Derivative discrepancies
On 10 March, IndusInd Bank acknowledged discrepancies in its derivatives portfolio in the October quarter, sparking a 27% crash in its shares the next day. The bank then appointed a professional firm to investigate the matter, which pegged the cumulative adverse accounting impact at ₹1,959.98 crore as on 31 March. It also said that the problem lay in “incorrect accounting of internal derivative trades" and that the report examined the roles and actions of key employees in this context.
The irregularity indicates an inadequate emphasis on accounting analysis and rigour as well as lapses in and violations of governance norms, internal controls, disclosure and reporting mechanisms to the board, Mehta said on Wednesday.
The bank has appropriately accounted for and reflected the impact of all discrepancies identified in these reports while finalizing the latest financial results, Mehta said.
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Earnings hit
IndusInd Bank wants to start FY26 with a “clean slate", Mehta said, adding it has “thoroughly reviewed all the lines of accounting" and taken a conservative view in some of the accounting treatments. The lender posted a loss of ₹2,329 crore in the March quarter, against a net profit of ₹1,402 crore in the previous quarter, and ₹2,349 crore in the Q4 of the previous year. In FY25, the bank’s profit after tax was ₹2575 crore, 71% lower on year.
The Q4 loss was much higher than market estimates. The lender was expected to report a net loss of over ₹200 crore, as per a Bloomberg consensus of 12 analysts. Estimates ranged between a net profit of ₹129 crore to a loss of up to ₹800 crore for the quarter.
Net interest income for the quarter was ₹3,048 crore, down 43% on year and 42% on quarter. Other income was at ₹709 crore, recording a fall of 72% on year and 70% sequentially.
Mehta said that the bank’s balance sheet remains healthy even after absorbing all these changes, with a capital adequacy ratio of 16.24% as of 31 March, and a provision coverage ratio of 70%. The average liquidity coverage ratio for the quarter was 118% with excess liquidity of ₹39,600 crore, and remains comfortable at around 139% in the first half of Q1 FY26.
Finalizing the latest financials involved substantive checks by statutory auditors to check for anomalies, Mehta told analysts, adding measures to address these issues, including setting staff accountability, will be reviewed and implemented under the board's oversight.
MFI, interest income
The rigorous review, as part of finalizing the financials, brought up two more issues besides the derivatives fiasco—one in its microfinance portfolio, and the other in incorrect recording of interest income and fee income.
The review identified misclassification of certain microfinance loans, which led to under-provisioning and non-recognition of non-performing assets (NPAs) of ₹1,885 crore. Further, there were certain “unsubstantiated balance in other assets and other liabilities accounts" of the bank, and an amount of ₹760 crore was incorrectly classified as interest income instead of other income.
Mint reported on 6 May that IndusInd Bank’s statutory auditors were reviewing the lender’s latest quarterly numbers when they noticed something amiss: the bank had bunched interest income from many microfinance loans together, instead of making individual entries for them.
Leadership change
IndusInd Bank is in the middle of a management transition after two top executives left in quick succession. The first to go was deputy chief executive Arun Khurana, who resigned two days after Grant Thornton submitted its report on the lapses. This was followed by chief executive Sumant Kathpalia, who left before the bank could find a successor.
RBI has advised the bank to submit proposals for appointing a new chief executive officer by 30 June 2025, Mehta said, adding the board is at an advanced stage in the selection process and is confident of submitting its recommendations within the prescribed timeline.
On 30 April, the board appointed a ‘committee of executives’ comprising Soumitra Sen, head of consumer banking and marketing, and chief administrative officer Anil Rao to manage the day-to-day operations.
Mehta said the board is working with the management to “bring in a cultural shift" at the bank towards achieving higher standards of ethics and governance.
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“Compliance with extent regulations in form as well as spirit is non-negotiable," he said, adding that these measures will ensure avoidance of repetition of such episodes and provide uninterrupted execution on the bank's strategic growth objectives.
Total deposits of the bank were at ₹4.1 trillion, up 7% on year and flat on quarter. The bank had witnessed an outflow of deposits following the 10 March disclosure. Sen said the bank has been proactively engaged with customers to rebuild trust, due to which the deposit franchise has shown resilience during this “turbulent time".
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