IndusInd Bank has suffered a consolidated net loss of ₹2,328.87 crore during the fourth quarter of 2024-25 as the bank engaged in a clean-up of its balance sheet in the wake of discrepancies in derivative trades, misclassification of microfinance loans and various other incorrect accounting. In Q4FY24, the bank had posted a net profit of ₹2,349.15 crore. During Q4FY25, total provisions and contingencies stood at ₹2,522.08 crore.
In its regulatory filing to the stock exchanges, the bank noted that it has received reports on derivative transactions between FY16 and FY24 from both the internal auditor as well as the independent professional firm. The reports revealed the accounting method followed here was improper, resulting in a notional income in the profit and loss account.
“Based on the qualification of accounting discrepancies, other assets of ₹1,959.98 crore (accumulated notional profits since FY2016) have been written off as prior period item in the current financial year,” the filing said.
The bank has rectified incorrect manual entries which had resulted in an unsubstantiated increase in other assets and liabilities amounting to ₹595 crore, which has no impact on the financial results.
A review of the microfinance portfolio also showed that certain loans were misclassified as standard assets along with accrual of interest income. “The bank corrected this classification, resulting in an additional recognition of non-performing advances aggregating to ₹1,885.19 crore. The bank has provided for these at a rate of 95 per cent aggregating to ₹1,791.08 crore. This provision together with a reversal of interest income of ₹178.12 crore resulted in an adverse impact of ₹1,969.20 crore to the profit and loss account for the quarter and year ended March 31, 2025,” the filing said.
The bank’s internal review found other instances of incorrect accounting that needed rectification. This includes ₹760 crore from interest income to other income and ₹157.9 crore from provisions and contingencies to other operating expense.
Unusual feat
IndusInd Bank has seen top management exits after the accounting discrepancies came to light. This included the bank’s MD and CEO, Sumant Kathpalia, deputy CEO Arun Khurana in April and CFO Gobind Jain in January.
The bank’s board subsequently selected 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 committee of executives is working under the guidance of an oversight committee, headed by Sunil Mehta, non-executive independent director and chairman of the bank.
“It is typically unusual for a part-time non executive chairman to address investors and analysts. However, given the recent chain of events, the board and management felt it appropriate to use this opportunity for the board chair to directly engage with you,” Mehta said addressing shareholders and market analysts on Wednesday.
He said the board was “not informed” of the discrepancies in accounting at the time of approval of financial results during the relevant period and since March 2025, it has swiftly taken steps to understand and address all areas of concern.
“The statutory auditors have done substantiative checks with wider sample sizes to analyse any anomalies in financial reporting so that all the identified issues can be adequately and fairly accounted while finalising Q4 results.
“The board and its committees are working with the management and external advisers to identify the root causes, rectifying any lapses in systems or processes and imbibing learnings to tighten internal controls. These shall be reviewed and implemented under the board’s oversight. We strongly believe that the extra steps will help in avoiding such instances in the future,” said Mehta.
Fraud concern
Given the scale of discrepancies across the bank’s balance sheet, incidence of fraud by the bank’s employees has not been ruled out.
“Based on the review of all these matters and review by the board, the board suspects the occurrence of fraud against the bank and the involvement therein of certain employees having a significant role in accounting and financial reporting of the bank. The bank has directed necessary steps to be taken under applicable law, including reporting to regulatory authorities and investigative agencies,” Mehta said.
Mehta said the impact has been fully accounted for in the audited financial statements and despite the losses, the bank’s balance sheet remains healthy with a capital adequacy of 16.24 per cent, provision coverage ratio of 70 per cent and an average liquidity coverage ratio of 118 per cent, with an excess liquidity of ₹39,600 crore.
Leadership transition
The bank’s day to day operations are currently carried out by the committee of executives, which includes Soumitra Sen, head – consumer banking, and Anil Rao, chief administrative officer. The RBI has also advised the bank to submit proposals for the appointment of a new CEO by June 30, 2025.
“The board is at an advanced stage in the selection process,” Mehta said.