Sumant Kathpalia
| Photo Credit:
KSL
Taking the moral responsibility for discrepancies found in IndusInd Bank’s derivative portfolio, the lender’s MD, CEO Sumant Kathpalia has resigned from his position with immediate effect.
“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 board of directors.
“I would request that my resignation be taken on record at close of working hours today. I would like to thank the Regulators, Board, my Management Team members and staff for the support I got during my tenure of 5 years as the CEO,” he said.
The board of IndusInd Bank has now sought approval of the Reserve Bank of India (RBI) to constitute a committee of executives who will discharge the duties of the CEO till a permanent CEO is appointed by the bank.
Kathpalia’s resignation comes a day after the bank’s deputy CEO and ED Arun Khurana resigned from the bank. Khurana said he had an oversight on the bank’s internal derivatives trade, where discrepancies were found, which led to adverse capital impact on the bank’s balance sheet.
How events unfolded
Troubles for IndusInd Bank unfolded when the lender in March said it has noted some discrepancies in its derivative portfolio, which could lead to an adverse impact on its net worth by ₹1,530 crore. The bank’s net worth stood at ₹65,102 crore as of December 2024.
“During internal review of processes relating to Other Asset and Other Liability accounts of the derivative portfolio, post implementation of RBI Master Direction – Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023 issued in September 2023, including accounting of Derivatives, applicable from April 1, 2024, Bank noted some discrepancies in these account balances,” the lender had said.
The lender initially appointed audit firm PwC to assess the final financial impact of the discrepancies found in the derivatives portfolio. This month, PwC confirmed that it has found discrepancies in the lender’s derivatives portfolio, and estimated a ‘negative impact’ of ₹1,979 crore on the bank’s financials as on June 30, 2024.
The bank separately appointed Grant Thornton to assess the root cause of these discrepancies. The audit firm also confirmed of discrepancies, estimating similar level of losses as PwC, and found incorrect accounting of internal derivative trades, especially in case of early termination, which resulted in recording of notional profits, as the root cause of the discrepancies.
The Grant Thornton report also examined the roles and actions of key employees in this context. Responding to the findings, the bank’s board said it is taking necessary steps to fix accountability of the persons responsible for these lapses and re-align roles and responsibilities of senior management. Since then, both CEO and deputy CEO of the bank have resigned from their position.
Furthermore, IndusInd Bank’s internal audit department (IAD), along with Ernst & Young, is also conducting a review of the bank’s microfinance business (MFI) to examine certain concerns which were brought to the management’s attention. The bank’s micro loan book stood at Rs 32,564 crore as on December end, constituting 9 per cent of overall advances.
In a recent interview with businessline, Ashok P Hinduja, Chairman of IIHL (IndusInd International Holdings Ltd), promoter of IndusInd Bank, said the promoter group was unhappy with the corporate governance practices at IndusInd Bank. He, however, said that the promoters are ready to infuse fresh capital in the bank if required, even as the lender’s capital remains is strong and above regulatory requirements.
The market will be keenly watching whether a former CEO of a public sector bank or an existing private sector banker currently at No 1 position in a smaller private sector bank or at No 2 position in a large private sector bank moves into the corner room at IndusInd Bank.
Published on April 29, 2025