Following this request, the board has initiated the process of selecting a top firm for conducting forensic audit, said the sources cited above.
The private lender, which has faced a 50%-plus market-value erosion in six months, disclosed on March 10 evening certain discrepancies in its derivatives portfolio. These gaps could adversely impact its net worth by 2.35% as of December 2024, with about ‘1,600 crore of the hit likely to reflect in the March quarter earnings. On Tuesday, the stock lost 27% after the disclosures, the most on record.
During an analyst call, IndusInd Bank MD & CEO Sumant Kathpalia stated that an external agency had been appointed to review the derivatives portfolio, with the report expected by the end of the fourth quarter.
After discovery of this problem, PwC was appointed by the bank as the external agency for the accounting review of the portfolio, but its report has yet to be tabled, said sources.
The management told investors these discrepancies have persisted for the past five-to-seven years. “We began reviewing our internal trade book and noticed some discrepancies in our business, which were identified between September and October,” Kathpalia told analysts after the disclosures to the stock exchanges.
CFO-Level Changes
Within months of the bank discovering this discrepancy, its CFO Gobind Jain resigned in January. He cited plans to explore other opportunities. Arun Khurana, executive director in-charge of global markets and transaction banking, was given additional charge of CFO.
IndusInd Bank, while refusing to comment on ET’s specific query about the auditors’ recommendations of a forensic scrutiny of its derivative accounts, said that the “bank will continue to intimate developments related to this to the stock exchanges, as per the applicable Sebi regulations and guidelines.”
Auditor MSKA & Associates did not respond to ET’s mailed queries.
Mail sent to Anagha Thatte, the signing audit partner from MP Chitale & Co, went unanswered. PwC also didn’t respond.
Over the last few years, multiple audit firms have reviewed the bank’s financial statements: Price Waterhouse (2015-16 to 2017-18), SR Batliboi & Co LLP (2018-19), Hari Bhakti & Co LLP (2019-20 to 2020-21), Hari Bhakti & MP Chitale (2021-22), and MP Chitale and MSKA & Associates (2022-23 to present).
Following the Reserve Bank of India’s (RBI) circular on auditor appointments, the bank’s financial statements have been audited by joint auditors.
The Institute of Chartered Accountants of India (ICAI) is expected to review IndusInd Bank’s books after taking suo-motu cognizance of the accounting discrepancies that the private lender disclosed this week in its forex derivatives portfolio, ICAI president Charanjot Singh Nanda told ET on March 13.
According to IndusInd Bank’s 2023-24 annual report, as of March 31, 2024, the audit committee comprised three members: Bhavna Doshi (chairperson), Akila Krishnakumar, and Pradeep Udhas. The committee met 25 times during the financial year 2023-24.
As per the report, a key responsibility of the committee was to approve treasury-related investments and disinvestments as per the bank’s domestic investment policy, overseas investment policy, and market risk management policy.
Low-Liquidity Instruments
The crisis stemmed from internal trades involving low-liquidity instruments, such as 3- to 6-year yen and 8- to 10-year dollar borrowings. Rather than directly hedging foreign currency borrowings and deposits with external counterparties, the bank used its internal desk for the hedging process.
While external trades were marked-to-market, the internal trades were valued using swap valuations. As a result, the two legs of the trade could fluctuate over the contract period but typically converge at maturity. So, it failed to identify the accounting error.
Following the issuance of a new RBI circular in September 2023, the bank began reviewing its derivatives portfolio, which led to the identification of these discrepancies.
