The accounting lapse disclosed on March 10 has resulted in a loss of nearly Rs 2000 crore.
Mumbai:Amidst mounting pressure, Sumant Kathpalia managing director and chief executive officer of IndusInd Bank has resigned from his position with immediate effect taking moral responsibility for the discrepancies found in the lender’s derivative portfolio that eroded its networth.
His resignation comes just a day after the Bank’s deputy chief executive officer Arun Khurana also stepped down in connection with the same issue. Its Chief Financial Officer Govind Jain had quit in January before the lapses came to light.
The board of the bank has sought the Reserve Bank of India’s approval to constitute a “Committee of Executives” to discharge the duties, roles and responsibilities of the CEO for an interim period until a permanent CEO is appointed by the bank, the lender informed the exchanges.
The accounting lapse disclosed on March 10 has resulted in a loss of nearly Rs 2000 crore. Amid the derivative loss issue, the exit of the bank’s CFO Gobind Jain earlier and the decision of CEO Kathpalia and Deputy CEO Khurana to sell shares worth Rs 157 crore in the last two years have come into the spotlight.
“I wish to submit my resignation from the services of the Bank in relation to the ongoing Derivatives discussion. I undertake moralresponsibility, given the various acts of commission/ omission that have been brought to my notice. I would request that my resignation be taken on record at close of working hours today,” Kathpalia stated in his resignation letter.
Khurana had said that he had an oversight on the bank’s internal derivatives trade, where discrepancies were found, which led to
adverse capital impact on the bank’s balance sheet.
According to reports, the RBI had advised both Kathpalia and Khurana to step down after the accounting issue came to light. The regulator is believed to have raised concerns over lapses in oversight and internal controls within the bank's treasury operations.
Kathpalia was appointed MD & CEO in March 2020. He had succeeded Romesh Sobti, who had led the bank for over a decade. Prior to this, Kathpalia headed IndusInd’s consumer banking division and was based in Delhi. Earlier, he had led the consumer loans division at ABN Amro Bank and joined IndusInd in 2008, alongside Sobti and others.
On Sunday, IndusInd Bank had disclosed that Grant Thornton had identified the incorrect accounting of internal derivatives trades – particularly in cases of early termination – as the root cause of the issue. These trades led to the recording of notional profits, which in turn resulted in significant accounting discrepancies. The firm estimated the cumulative adverse impact on the bank’s profit and loss account at ₹1,959.98 crore as on March 31, 2025.
As per RBI directives on investments issued in September 2023, banks are prohibited from conducting internal trades/ hedging and, accordingly, IndusInd Bank too ceased internal trades from April 1, 2024. However, during an internal review, the bank identified certain discrepancies where accounting of losses on forex derivatives/ swap transactions executed prior to April 2024 (over the past 5-7 years) to hedge forex deposits/ debt were not recognised through NII (net interest income), while the corresponding treasury gains were recognized in the profit and loss account. Derivatives are used by the treasury department to convert forex deposits/ borrowings into the rupee.
