Internal review identified discrepancies in derivative portfolio: IndusInd
Mumbai, Mar 10, 2025
Discrepancies in derivatives portfolio to have 2.35% impact on the lender's net worth
IndusInd Bank Managing Director and Chief Executive Officer (CEO) Sumant Kathpalia on Monday said that the Reserve Bank of India (RBI) may have concerns about his leadership skills in running the bank, which is why it granted him only a one-year extension, despite the board recommending a three-year reappointment.
He made these remarks during an analyst call on Monday while addressing concerns about discrepancies found in the bank’s internal review of accounts related to its derivatives portfolio, which are expected to have a 2.35 per cent impact on the bank’s net worth as of December 2024.
“This would have had an impact because it (RBI) was aware of the issue. There was some inkling of the issue. I don’t know the rationale behind them giving me a one-year extension. But I think it is uncomfortable with my leadership skills in running the bank, and we have to respect that,” Kathpalia said, adding that this is a “litmus test” for the bank from a succession point of view as well.
“I don’t think the business-as-usual operations of the bank will suffer. I don’t think our growth agenda will go off track, and I remain committed for one year to the bank. Let’s see how the process goes. The board will evaluate both external and internal candidates for the CEO position,” he said.
In an exchange notification on Monday, the bank said that an internal review of processes related to its ‘Other Asset’ and ‘Other Liability’ accounts within the derivatives portfolio revealed certain discrepancies in the account balances.
“The bank’s detailed internal review has estimated an adverse impact of approximately 2.35 per cent of the bank’s net worth as of December 2024. The bank has also, in parallel, appointed a reputed external agency to independently review and validate the internal findings,” the exchange notification said, adding that a final report from the external agency is awaited, and based on that, the bank will appropriately consider any resultant impact on its financial statements.
“The bank’s profitability and capital adequacy remain healthy enough to absorb this one-time impact,” it further added.
Addressing the analyst call, Kathpalia said the bank will take this hit through its profit-and-loss account, as the general reserves cannot be touched, adding that the bank would like to close it in the current quarter (Q4), if possible.
Kathpalia said that following RBI’s circular in September 2023 — Classification, Valuation, and Operation of Investment Portfolios of Commercial Banks — the bank started reviewing its derivatives book, and as of April 1, 2024, internal trades had to be discontinued, which is when discrepancies started to be identified.
He also added that the external agencies should not produce a starkly different number, and the figure should be range-bound.
Derivatives discrepancies amid leadership shakeup
· IndusInd Bank finds discrepancies in its derivatives portfolio
· External agency appointed to validate internal review findings
· This follows RBI’s decision to grant only a one-year extension to the MD and CEO Sumant Kathpalia
· The bank’s board had recommended a three-year reappointment from the central bank
[The Business Standard]
