IndusInd CEO Sumant Kathpalia resigns over derivative accounting lapses
Mumbai, Apr 29, 2025
Bank seeks RBI nod for forming exec panel to discharge CEO duties
Sumant Kathpalia, managing director and chief executive officer (MD&CEO), IndusInd Bank, has resigned with immediate effect, taking moral responsibility for ‘various acts of commission/omission’ following the accounting lapses leading to nearly Rs 2,000 crore loss.
The move comes after a report by Grant Thornton on Sunday — a firm that was appointed by the bank to find the root cause for the loss and examine the roles and actions of key employees.
Yesterday, the deputy CEO of the private sector bank, Arun Khurana, resigned over these accounting lapses.
“I wish to submit my resignation from the services of the bank in relation to the ongoing derivatives discussion. I undertake moral responsibility, given the various acts of commission/omission that have been brought to my notice,” said Kathpalia in his resignation letter.
The bank’s board has sought approval from the Reserve Bank of India (RBI) to constitute a “committee of executives” to discharge the duties, roles and responsibilities of the CEO of the bank, for an interim period until a permanent CEO is appointed.
Last year, Thoothukudi-based Tamilnad Mercantile Bank (TMB) constituted a three-member committee of executives (COEs) to oversee its administration and operations in the absence of a CEO.
In March, the Reserve Bank of India (RBI) had approved a one-year extension of Kathpalia’s term as MD&CEO despite the board of the bank approving a three-year reappointment. It was the second consecutive time that the RBI had approved a shorter tenure despite the board approving a three-year term for Kathpalia.
Kathpalia, in an analyst call, had highlighted that the discrepancies found in the derivatives portfolio of the bank could be one of the reasons why the RBI gave him only a one-year extension.
Kathpalia has been heading IndusInd Bank since March 2020.
He took over from Romesh Sobti, who headed the bank for over a decade. Kathpalia was heading the bank’s consumer banking business and was based out of Delhi. Kathpalia used to head the consumer loans vertical at ABN Amro Bank and had joined IndusInd Bank with Sobti and others in 2008.
The Mumbai-based bank disclosed late on Sunday that the independent professional firm, Grant Thornton, appointed by its board to find out the root cause behind the discrepancy in the derivative portfolio among other things, identified that incorrect accounting of internal derivative trades by the bank — particularly in cases of early termination — led to the recording of notional profits, which resulted in the accounting discrepancies.
According to the firm’s assessment, the cumulative adverse accounting impact on the profit and loss account of the bank as of March 31, 2025, would be Rs 1,959.98 crore.
The recent episode unfolded on March 10 when the bank disclosed to the exchanges that in an internal review it had found discrepancies in its derivatives portfolio, which would have an adverse impact of 2.35 per cent on its net worth as of December 2024.
The bank also stated that it had appointed PwC to review the estimate of the loss in the derivatives portfolio. Later, the bank disclosed that it had appointed an independent professional firm — Grant Thornton — to conduct a comprehensive investigation to identify the root cause of the discrepancies in the derivatives portfolio of the bank.
On April 15, the bank disclosed that PwC, which was engaged by its board to validate the findings of its internal review, identified discrepancies in its derivatives portfolio and estimated a negative impact of Rs 1,979 crore as of June 30, 2024. Accordingly, based on PwC’s report, the bank stated that the discrepancies would have an adverse post-tax impact of 2.27 per cent on its net worth as of December 2024. At the end of the December quarter, the bank’s net worth was Rs 65,102 crore.
Under Kathpalia’s tenure as MD&CEO, the bank’s loan book expanded to Rs 3.66 trillion (9MFY25) from Rs 2.06 trillion, while the deposit base expanded to Rs 4.09 trillion from Rs 2.02 trillion during this period. Additionally, the bank’s net worth grew from Rs 34,387 crore to Rs 67,106 crore as of December 2024.
Kathpalia is a qualified chartered accountant and has worked with foreign banks such as Citibank and Bank of America. He is credited with building IndusInd Bank’s consumer loans portfolio from scratch, as part of a strategy to diversify the loan book adopted by the bank. He took over the reins of the bank from Sobti when the private lender’s stock was struggling due to concerns over its telecom exposure.
[The Business Standard]
