Did IndusInd Bank CEO Kathpalia Resign Over Derivatives Accounting Issues?

Mumbai, April 29 (NationPress) - IndusInd Bank revealed on Tuesday that its Managing Director and CEO Sumant Kathpalia has stepped down from his position due to a significant lapse in derivatives accounting that has negatively affected the net worth of the private sector bank.

This announcement follows the resignation of Deputy CEO Arun Khurana the previous day, after an independent audit uncovered accounting irregularities within the bank's derivatives portfolio.

The findings from the investigation, conducted by a professional firm appointed by the bank’s board, were presented on April 26. The audit confirmed that flawed accounting practices had a detrimental cumulative effect of Rs 1,959.98 crore on the bank's profit and loss statement as of March 31, 2025.

In his resignation letter, Kathpalia expressed, "I wish to submit my resignation from the services of the Bank in relation to the ongoing derivatives discussion. I take moral responsibility for the various acts of commission and omission that have been highlighted to me. I kindly request that my resignation be recorded at the close of business hours today."

The issue first emerged on March 10 when IndusInd Bank admitted that mark-to-market (MTM) losses in its derivatives portfolio could potentially impact up to 2.35 percent of its net worth, as of December 2024, due to discrepancies identified during an internal review. The loss in net worth was estimated at around Rs 1,600 crore.

The Reserve Bank of India (RBI) instructed the bank to hire global audit firm Grant Thornton Bharat for a forensic investigation to accurately assess the losses incurred.

The investigation by Grant Thornton pointed out that the bank's incorrect accounting of internal derivative transactions, especially in cases of early termination, resulted in notional profits that led to these accounting discrepancies.

Additionally, the bank sought permission from India's central bank to establish a committee of executives to assume the responsibilities of the CEO.

Earlier, the RBI had opted in March to grant only a one-year extension to Kathpalia's tenure, despite the bank's request for a three-year term. This decision was influenced by concerns regarding governance and financial reporting practices at IndusInd Bank.

IndusInd Bank stated that the net worth impact stemmed from internal derivative transactions that did not comply with regulations from the RBI effective April 2024.

The RBI had revised the rules overseeing the investment portfolios of commercial banks in September 2023.