IndusInd Bank's Operational Issues and Regulatory Actions
IndusInd Bank recently experienced a significant stock market crash, with its share price dropping by 27% and a decrease in market capitalization by ₹19,000 crore. This drop is attributed to alleged operational missteps and regulatory scrutiny over accounting practices.
Key Issues
- Accounting Practices:
- Non-compliance with accounting practices and delay in correcting discrepancies.
- Losses from the derivatives portfolio were reflected as receivables, classified under intangible assets, without necessary provisions.
- Regulatory Norms:
- Difficulty in complying with the RBI's "Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023." These norms became effective on April 1, 2024.
- While most banks complied by June 30, 2024, IndusInd failed to meet the timeline, initially indicating compliance by September but failing to do so.
- Faced additional provisioning requirements for microfinance and jewellery loan portfolios.
Regulatory Actions
- CEO’s Term: The RBI extended CEO Sumant Kathpalia's term by only one year, despite a board recommendation for three years, and requested new CEO nominations.
- External Audit: In November, IndusInd Bank appointed PwC to audit and validate the derivatives portfolio, likely prompted by regulatory pressure.
- Disclosure: A special board meeting disclosed potential losses of ₹1,500 crore, with speculation that losses could rise to ₹1,900-2,000 crore pending the final audit report.
Impact and Outlook
- The discrepancies span over four to five years, with about ₹1,200 crore accumulated in the last two years, intensifying the issue.
- Concerns raised regarding the inability of internal and statutory auditors to detect these discrepancies earlier.
