Posted on April 16, 2025, by Niftynews
IndusInd Bank is facing a critical situation, with senior-level executives potentially exiting the bank due to a massive ₹1,979 crore loss related to its derivatives portfolio. This loss, which has drawn significant attention, is expected to lead to the departure of at least three top executives, including CEO Sumant Kathpalia and Deputy CEO Arun Khurana, who managed the global markets and derivatives operations.
The Impact of the ₹1,979 Crore Derivatives Loss
An external review by PwC has confirmed the ₹1,979 crore hit to IndusInd Bank’s balance sheet, a figure in line with the Reserve Bank of India (RBI) own assessment. This significant loss stems from discrepancies in the bank’s derivative accounts, which have accumulated over the past 5 to 7 years. The situation came to light after an internal review, which was first disclosed on March 10, revealed the extent of the problem.
The financial impact, initially estimated at 2.35% of IndusInd Bank’s net worth as of December 2024, was later revised. CEO Sumant Kathpalia had initially quantified the net post-tax impact as ₹1,520 crore, with a gross impact of ₹1,970 crore. The most recent disclosure, dated April 15, confirmed that the final loss is 2.27% of the bank’s net worth.
Regulatory Concerns and Senior-Level Exits at IndusInd Bank
The timeline and manner in which IndusInd Bank disclosed the derivatives loss have raised concerns among regulators, especially the RBI. Sources suggest that the regulator is troubled by how the situation was handled, which could lead to the departure of key senior executives. As a result, senior-level exits are being discussed within the bank.
An IndusInd Bank spokesperson, when questioned about the potential senior-level exits, denied any official communication regarding the matter. The bank also refrained from commenting on speculative reports about its management. However, insiders suggest that the board is already working on succession planning in light of the issue.
The Road Ahead: IndusInd Bank’s Leadership Transition
In response to the ongoing situation, IndusInd Bank’s board is reportedly focusing on succession planning, with the RBI urging the bank to identify potential candidates for the CEO role. This comes after the RBI decided to extend Kathpalia’s term by just one more year, meaning the bank must start the search for his successor at least four to six months before his term ends in March 2026.
Timeline of Derivatives Loss Discovery
The issue with the derivatives portfolio was first uncovered in October 2024, when the bank identified discrepancies involving several derivative deals. Kathpalia explained in a March 11 interview that while initially only two deals were found to be incorrectly accounted for, a more extensive review revealed that many more were involved. The situation was then escalated to the board, which led to the public disclosure of the issue.
Despite the severity of the situation, Kathpalia reassured investors that the bank would not report an overall loss for the fiscal year. He mentioned that the bank was still expected to remain profitable in Q4, even after factoring in the impact of the derivatives issue.
IndusInd Bank’s Commitment to Addressing the Issue
IndusInd Bank has committed to taking corrective actions to prevent such issues from reoccurring. The bank has vowed to reflect the full impact of the derivatives loss in its financial statements for FY 2024-25. Additionally, it will continue to work on improving internal controls around its derivative accounting operations.
Conclusion: What’s Next for IndusInd Bank?
The departure of senior executives at IndusInd Bank, while still speculative, is a real possibility given the magnitude of the derivatives loss and the regulatory scrutiny that the bank is under. As the board works on leadership succession, the next few months could bring significant changes at the top level of the bank. The outcome of this crisis will be critical for the bank’s ability to regain trust and ensure stability in the long run.
