IndusInd Bank CEO Sumant Kathpalia resigns amid management shakeup following derivatives accounting lapses

Mumbai: Sumant Kathpalia has stepped down as the managing director and chief executive officer (CEO) of IndusInd Bank with immediate effect amid ongoing investigations into discrepancies in the accounting of its derivatives portfolio.

“I wish to submit my resignation from the services of the Bank in relation to the ongoing Derivatives discussion. I undertake moral responsibility, given the various acts of commission/ omission that have been brought to my notice,” Kathpalia said in his resignation letter to the bank, asking to be relieved from the close of working hours on Tuesday. Kathpalia was the head of the bank for five years.

Meanwhile, the bank said that the board, as per provisions of Section 10B(9) of the Banking Regulation Act, 1949, has sought the Reserve Bank of India’s (RBI) approval to constitute a ‘committee of executives’ to discharge the duties, roles and responsibilities of CEO "for an interim period until a permanent CEO is appointed”.

The relevant section provides that when a board member on whole-time basis--such as chairman of the board of directors or the managing director—dies, resigns, is incapable of carrying out his duties and/or is absent on leave or otherwise, a bank may make “suitable arrangements” for carrying out their duties for a maximum of four months, subject to RBI’s approval.

Also read | IndusInd Bank Saga: Deputy CEO Arun Khurana resigns amid firm’s plans to rejig top management

Legal experts said that while the section is seldom invoked, it forms a vital part of the statutory framework, enabling the Board to maintain executive functionality during unexpected leadership vacuums.

“Its infrequent use may be attributed to the prevalence of pre-planned succession frameworks and delegated interim authorities commonly seen in well-governed banking entities,” said Kunal Sharma, partner at law firm Singhania & Co.

Sharma said that the invocation of the section, though legally tenable and operationally stabilizing, warrants scrutiny from a governance standpoint.

“It is imperative that such recourse be accompanied by a defined timeframe, transparent communication to stakeholders, and prompt steps towards the appointment of a duly qualified managing director to preclude any erosion of governance standards,” he said.

Second senior resignation

Kathpalia’s resignation follows that of Arun Khurana, who resigned as the bank's whole-time director (executive director) and deputy CEO effective the end of business hours on 28 April.

Khurana had cited the "recent unfortunate developments, wherein the bank determined an adverse accounting impact on P&L (profit and loss account)” and given that he had oversight of the treasury front office function. The impact was due to “incorrect accounting for internal derivative trades”, he said.

Before this, Khurana had also been asked to step down as the chief financial officer, a post he was elevated to on 21 January after Gobind Jain resigned as the CFO a day earlier, citing personal reasons and his keenness to pursue “opportunities outside the Bank or within the promoter Group”.

Also read | IndusInd Bank elevates Santosh Kumar as deputy CFO

On 18 April, the bank appointed chief accountant Santosh Kumar as the CFO and special officer—finance and Accounts, “till a full time CFO is appointed”, in place of Khurana.

After IndusInd Bank disclosed the discrepancies in the derivatives portfolio on 10 March, the board announced, on 20 March, that it had appointed an independent agency to conduct a comprehensive investigation to identify the root cause of the discrepancies, identify lapses, and establish accountability in this connection.

Following the disclosure, the RBI said on 15 March that it had asked the board and management of IndusInd Bank to complete the remedial action during Q4FY25 after making the required disclosures to all stakeholders. The bank has yet to declare its financials for the reporting quarter.

External review findings

The agency’s report, submitted on 26 April, determined a cumulative loss of ₹1,960 crore on the bank’s P&L, the bank disclosed earlier this month. "The bank will appropriately reflect the resultant impact of the accounting discrepancies in the financial statements for FY25 and take measures to strengthen internal controls accordingly,” it said, adding that it discontinued internal derivative trades from 1 April 2024.

IndusInd Bank notified that the report has identified incorrect accounting of internal derivative trades, especially in cases of early termination—which resulted in recording notional profits—as the root cause of the accounting discrepancy.

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

Also read | IndusInd Bank Shake-up: Board to re-align top management roles after ₹1,959.98 crore accounting impact

Early in April, the bank had also put in place a review of its independent findings by an external agency, which assessed the impact of the identified discrepancies at ₹1,979 crore, amounting to a hit of 2.27% to the bank’s net worth as of December 2024. The internal review by the bank estimated an impact of 2.35% on net worth.

IndusInd Bank's shares dropped from ₹901.95 to a 52-week low of ₹606.00 intraday on 12 March. The disclosure of discrepancies was made after market hours on 10 March. Since then, the stock has offset some losses, aided by updates from the bank on the external reviews. The stock has been gaining for the last two sessions as the findings of the external agency report were in line with initial disclosures, following the resignation of Khurana. On Tuesday, shares of IndusInd Bank closed 0.9% higher at ₹837.50 on the NSE.

Shayan Ghosh contributed to this story.