Daijiworld Media Network - Mumbai
Mumbai, Apr 30: In a significant move, the Reserve Bank of India (RBI) has approved the formation of an interim committee to manage the operations of IndusInd Bank, following the resignation of its Managing Director and CEO Sumant Kathpalia. Kathpalia stepped down in the wake of a major accounting lapse involving the bank's derivatives portfolio, which led to a significant erosion of the bank's net worth.
In a filing to the stock exchange on Wednesday, IndusInd Bank stated that the interim committee will oversee the day-to-day operations of the bank until a permanent CEO is appointed. The committee will be headed by Soumitra Sen, head of consumer banking, and Anil Rao, chief administrative officer. They will function under the supervision of an oversight committee of the Board, which includes key members such as the chairman of the board, the heads of the audit committee, the compensation and nomination and remuneration committee, and the risk management committee.
The interim committee is expected to manage the bank's affairs for a period of up to three months or until the appointment of a new CEO, whichever comes earlier. This step is part of the bank's efforts to maintain stability and continuity in its operations while upholding high standards of governance, the filing said.
The resignation of Kathpalia follows the revelation of accounting discrepancies within the bank’s derivatives portfolio, discovered during an independent audit. The findings, submitted to the board on April 26, confirmed that incorrect accounting practices resulted in a cumulative loss of Rs 1,959.98 cr in the bank's profit and loss account as of March 31. This revelation significantly impacted the bank’s net worth.
In early March, IndusInd Bank disclosed that mark-to-market (MTM) losses in its derivatives book could affect up to 2.35 percent of its net worth as of December 2024, amounting to around Rs 1,600 cr. Following this, the RBI directed the bank to appoint global audit firm Grant Thornton Bharat for a forensic investigation to assess the full extent of the losses.
The discrepancies stemmed from incorrect accounting of internal derivative trades, particularly those involving early terminations, which led to the recognition of notional profits and subsequent accounting errors.
The news of the interim committee and the ongoing investigation sent shockwaves through the market, with the bank's stock dipping in early trading on Wednesday. Deputy CEO Arun Khurana has also resigned following the accounting irregularities.
IndusInd Bank assured stakeholders that it is taking all necessary steps to address the issues and to restore confidence in its operations.