IndusInd Bank Receives Support from Promoter Hindujas Amid Ongoing Investigation
Amid an ongoing investigation by the Securities and Exchange Board of India (Sebi), IndusInd International Holdings (IIHL), the original promoter of IndusInd Bank, has expressed unwavering support for the bank’s board and management. Following the revelation of a significant accounting fraud during the March quarter, IIHL has committed to injecting equity capital if necessary. Chairman Ashok Hinduja emphasized his confidence in the bank’s leadership, asserting that they are taking appropriate measures to address the discrepancies.
Support for Bank’s Leadership
Ashok Hinduja, in a recent statement, reiterated his “unequivocal trust” in the bank’s chairman and board of directors. He praised their swift actions to tackle the issues arising from the accounting fraud. Hinduja highlighted that the management, under the board’s guidance, has successfully preserved the bank’s capital strength and maintained its core business operations. He expressed optimism about the future, stating, “This shall be a new dawn with a sanitised slate to regain the position the bank enjoyed for many decades.”
Despite the bank reporting a staggering net loss of Rs 2,329 crore in the March quarter—its worst performance in two decades—IndusInd Bank’s shares saw a slight recovery, closing 1.8% higher at Rs 785.10. This rebound followed a nearly 6% drop earlier in the day. However, analysts remain cautious, noting that the fraud disclosure could bring renewed scrutiny on the bank and its key officials.
Regulatory Scrutiny Intensifies
Sebi Chairman Tuhin Kanta Pandey confirmed that the regulator is investigating “egregious violations” by senior officials at IndusInd Bank. He stated that while the Reserve Bank of India (RBI) would handle supervisory aspects, Sebi is focused on potential breaches within the securities market. Pandey assured reporters that any significant violations would be thoroughly examined. The bank has reported the fraud to investigative agencies and the government, indicating a serious commitment to transparency.
An internal audit revealed that senior officials, including former key management personnel, had bypassed internal controls, particularly in the derivatives and microfinance sectors. The total impact of these irregularities has been estimated at Rs 3,400 crore. This includes a misstatement of Rs 1,960 crore in derivative trades, Rs 674 crore in interest income reversals, and a Rs 172 crore fraud related to microfinance operations.
Market Reactions and Future Outlook
Market analysts are closely monitoring the situation, with some expressing the need for a detailed examination of the bank’s financials. Suresh Ganapathy from Macquarie emphasized the importance of scrutinizing every line item to assess the bank’s stability and future loan mix. He indicated that understanding the priorities of the new CEO will be crucial in determining the bank’s path forward.
As the investigation unfolds, the banking sector will be watching closely to see how IndusInd Bank navigates this challenging period. The commitment from IIHL to support the bank financially may provide some reassurance, but the road to recovery will require transparency and effective management to restore investor confidence.
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