This swift leadership shake-up follows IndusInd Bank’s announcement just days prior, signaling an intent to address the situation head-on by taking corrective action against the employees involved in the lapses and revamping its senior management structure to enhance accountability.
IndusInd Bank is under intense scrutiny due to a substantial Rs 1,959.98 crore loss linked to misaccounted internal derivative trades. According to the bank, the losses were primarily the result of inaccurate accounting for internal derivative trades, particularly where contracts were terminated early. These errors led to inflated notional profits, concealing the true financial state of the derivatives portfolio over multiple reporting periods.
Kathpalia, who was appointed CEO on March 24, 2020, is a 60-year-old seasoned banking professional with a long tenure at IndusInd, having joined the bank in 2008. He is credited with expanding the bank’s consumer loan portfolio from the ground up, broadening the loan book beyond corporate clients, and diversifying the bank’s offerings to include products like loans against property, personal loans, and credit cards alongside the bank’s traditional vehicle finance business.
Under his leadership, the bank’s balance sheet grew from Rs 4.24 lakh crore in March 2020 to Rs 5.43 lakh crore by December 2024. Kathpalia’s career also includes leadership roles at ABN Amro, where he headed the consumer loans division before joining IndusInd. He is a chartered accountant with extensive experience, having worked at Bank of America and Citibank before transitioning to leadership roles at ABN Amro.
However, Kathpalia’s tenure was not without controversy. Under his leadership, IndusInd Bank faced several regulatory challenges. In December 2024, the Reserve Bank of India (RBI) imposed a penalty on the bank for failing to adhere to deposit interest rate guidelines, while its investigation revealed that the bank had opened savings accounts for ineligible individuals. In July 2022, a fine of Rs 1 crore was imposed for non-compliance with Know Your Customer (KYC) norms. Additionally, in November 2021, the bank disclosed that it had inadvertently disbursed around 84,000 loans without customer consent due to a technical glitch.
The RBI had consistently shortened Kathpalia’s tenure. In March 2024, the regulator approved a one-year extension of his term, which was initially set to end in March 2025, pushing it to March 2026. However, this was the second instance where the RBI altered the bank’s proposed term. In March 2023, the RBI had reduced his tenure to two years, instead of the three years originally recommended by the bank’s board.
In a recent analyst call, Kathpalia addressed concerns surrounding his leadership, acknowledging that the RBI might have reservations about his capabilities. “I don’t know what the rationale is for them (RBI) to give me one year, but I think they’re uncomfortable with my leadership in running the bank, and we have to respect that,” he had said. “This is a test for the bank, as well as for succession planning, to see how we move forward. I remain committed for one year, and the board will evaluate both internal and external candidates for the CEO position. I don’t know whether they’ll evaluate me or someone else, that’s for the board to decide.”