Private sector lender IndusInd Bank, on May 15, has found itself under fire again after the Bank confirmed accounting irregularities totalling Rs 1,269 crore – the latest in a series of financial missteps that has raised concerns about deeper systemic issues at the Bank. In a regulatory filing, the Bank disclosed that its Internal Audit Department (IAD) had identified two significant financial discrepancies – one, the Bank’s statement showed Rs 674 crore incorrectly recorded as interest income across three quarters of FY25. Additionally, a whistleblower complaint led to the discovery of unsubstantiated balances of Rs 595 crore in “other assets” accounts.
Share price of IndusInd Bank has been trading on a negative note for a long time. Since the start of 2025, it is down by 20 per cent.
Interestingly, this isn’t the first such incident from IndusInd Bank when it has come under scrutiny for financial misconduct. A pattern of accounting irregularities and financial discrepancies appears to be emerging, raising serious concerns that such lapses may be becoming systemic at the private sector lender.
What really happened – on May 15 and before
Fresh audit findings
On May 15, IndusInd Bank informed the exchanges that its Internal Audit Department (IAD), while conducting a review of the Bank’s MFI business, found incorrect interest income entries amounting to Rs 674 crore, spread over three quarters of FY25. IndusInd Bank, however, clarified that this entire amount was subsequently reversed as of January 10, 2025.
Furthermore, the Bank told the exchanges that following a whistle-blower complaint, the IAD was tasked with examining transactions recorded under the categories of “Other Assets” and “Other Liabilities.” In its findings, the audit department reported unsubstantiated balances amounting to Rs 595 crore under “Other Assets.”
The audit report, submitted on May 8, came after the Bank’s April 22 announcement that it was looking into issues related to its microfinance business.
The microfinance mess
Now what was the issue with its microfinance business? In March, IndusInd Bank had disclosed a Rs 1,580 crore discrepancy in its derivatives portfolio, which could hit its net worth by approximately 2.35 per cent as of December 2024. The private sector bank’s net worth as of December 31 stood at Rs 65,102 crore. Post this revelation, the Bank had appointed a reputed external agency to independently review and validate the internal findings.
In parallel, the Bank had maintained that its profitability and capital adequacy remained healthy enough to absorb this one-time impact.
The discrepancy had surfaced just days after its CEO got a shorter extension from the RBI for re-appointment of Sumant Kathpalia as MD & CEO of IndusInd Bank for a further period of one year with effect from March 24, 2025. This was despite the Bank’s board requesting a three-year reappointment.
Leadership exodus
Now on April 15, IndusInd Bank had disclosed there could be potentially Rs 1,979 crore impact on FY25 earnings as a result of accounting discrepancies. Grant Thornton, the forensic auditor, delivered its report on April 26 and the next day IndusInd Bank confirmed Rs 1,960 crore impact. While the Bank, on April 28, assured shareholders that it will take steps to strengthen internal controls in the bank and re-align roles, on April 29, the Bank’s top leadership, the CEO and the deputy CEO resigned. The resignation of CEO Sumant Kathpalia raised concerns that it could delay the Bank’s recovery, disrupt business, increase the risk of run-on deposits and cause a further deterioration in asset quality.
Regulatory response
Post this on April 30, the Reserve Bank of India (RBI) approved a “Committee of Executives” to manage IndusInd Bank’s operations.
In January 2025, the Bank’s CFO Gobind Jain had resigned, just before Q3 earnings.
Troubled history
Before this, earlier in November 2021, whistleblowers had alleged that IndusInd Bank’s microfinance subsidiary, Bharat Financial Inclusion Ltd (BFIL), engaged in “evergreening” loans by issuing new loans to repay overdue ones, potentially misrepresenting asset quality. The Bank had however denied these claims but admitted to disbursing 84,000 loans without customer consent due to a technical glitch, which was later rectified.
Assurance of internal control measures
In the regulatory filing on May 15, IndusInd Bank gave an assurance that it is taking steps to strengthen internal controls and ensure accountability for these lapses. “The IAD has also examined the roles and actions of key employees in this context. The Board is taking necessary steps to strengthen internal controls, fix accountability of the persons responsible for these lapses and will take action as appropriate,” it said.
What does this mean for shareholders?
The IndusInd Bank fiasco is more damaging for shareholders than depositors. While investors have already seen a 20 per cent drop in share price this year, further losses are likely due to earnings hits, leadership exits, and ongoing regulatory scrutiny.
IndusInd Bank’s Q3 performance
In January, IndusInd Bank had released its fiscal third quarter earnings report with profit at Rs 1,402.3 crore. This was 39 per cent YoY lower than Rs 2,301 crore recorded in the same quarter last year. Net interest income (NII), meanwhile, fell 1.3 per cent to Rs 5,228.1 crore from Rs 5,295.6 crore a year ago.