IndusInd Bank Faces Major Accounting Setback
IndusInd Bank has revealed significant accounting discrepancies in its derivative portfolio, which are projected to negatively impact its net worth by ₹1,979 crore. This revelation, made public on Tuesday, indicates a post-tax reduction of approximately 2.27% in the bank’s net worth as of December 2024. In response to these lapses, the bank has engaged external auditors to assess the situation and recommend corrective measures.
Accounting Discrepancies Uncovered
The private sector lender initially reported these accounting lapses last month, estimating a potential impact of around 2.35% on its net worth. Following this alarming discovery, IndusInd Bank took decisive action by appointing PricewaterhouseCoopers (PwC) to evaluate the extent of the discrepancies and their implications for the bank’s balance sheet. PwC’s report, submitted in a regulatory filing, quantified the adverse impact at ₹1,979 crore as of June 30, 2024.
IndusInd Bank has committed to reflecting this impact in its financial statements for the fiscal year 2024-25. The bank is also taking proactive steps to enhance its internal controls related to derivative accounting operations to prevent future occurrences of such lapses.
Forensic Audit Underway
In addition to PwC’s assessment, IndusInd Bank’s board has engaged Grant Thornton to conduct a forensic audit of the accounting discrepancies. This comprehensive investigation aims to identify the root causes of the issues and evaluate the accuracy of the accounting treatment of derivative contracts in accordance with existing accounting standards. Grant Thornton will also pinpoint any lapses and establish accountability for the discrepancies.
This dual approach of external assessment and forensic auditing underscores the bank’s commitment to transparency and accountability in addressing the accounting issues.
Support from Promoters Amidst Challenges
In light of the recent developments, IndusInd International Holdings Ltd (IIHL), the Mauritius-based promoters of IndusInd Bank, have pledged to inject capital into the bank if necessary. IIHL, which is the investment arm of the Hinduja Group, has recently received in-principle approval from the Reserve Bank of India (RBI) to increase its stake in the bank from 16% to 26%. This move reflects the promoters’ confidence in the bank’s long-term viability despite the current challenges.
Reserve Bank Governor Sanjay Malhotra has characterized the accounting lapses as “episodes” rather than failures, emphasizing that such occurrences are not uncommon in a large banking system. He reassured stakeholders that the banking sector remains safe and robust, despite the challenges faced by a small fraction of cooperative banks in recent years.
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