Context:
Arun Khurana, Deputy CEO and Executive Director of IndusInd Bank, resigned with immediate effect. His resignation comes after a board-reviewed ₹1,960 crore hit from incorrect accounting of internal derivative trades. Khurana, in his resignation letter, accepted responsibility as the overseer of the treasury front office function.
RBI and Board Context
- The resignation follows the RBI’s decision in March to approve only a one-year extension for MD & CEO Sumant Kathpalia, despite a board recommendation for three years.
- The bank, in a statement, said it would hold staff accountable after concluding its internal investigation.
Investigation Findings
- Independent probe initiated in March 2025 revealed the accounting discrepancies.
- Final report submitted on April 27 found a total adverse P&L impact of ₹1,960 crore as of March 31.
- The bank’s board reviewed the findings over April 26–27.
Nature of the Accounting Lapse
- The error involved internal derivative trades between the asset-liability management (ALM) desk and treasury.
- These trades were recorded using accrual accounting, while external trades were marked to market.
- This led to:
- Premature booking of gains on external trades
- Deferral of losses on internal trades
- Resulting in overstatement of profits
Implications for the Bank and Sector
- This is a major setback for IndusInd Bank’s financial credibility and risk governance.
- Analysts expect regulatory scrutiny to tighten over derivative accounting across Indian banks.
- The case may influence investor confidence, especially in private sector banks engaged in complex treasury operations.
