PwC submits IndusInd derivatives review draft, bank denies receiving it

PwC has submitted its draft findings to IndusInd Bank following an accounting review of the lender’s derivatives portfolio. The report, commissioned after the bank uncovered discrepancies in the booking of forex derivative transactions, focuses strictly on accounting aspects and does not assign responsibility or delve into the timeline of lapses, two sources told the Economic Times.

The accounting review began in October 2024, shortly after IndusInd Bank disclosed issues related to the misstatement of forex derivative losses over several years. The bank is currently reviewing PwC’s draft and is expected to share its observations with the firm. Officials from IndusInd also held consultations with PwC’s team during the course of the review.

While PwC has limited its scope to accounting review, Grant Thornton Bharat is conducting a separate forensic investigation to trace the root cause of the bank’s derivative losses, identify lapses, and determine accountability.

In an official statement, IndusInd denied receiving the report. 

"IndusInd Bank hereby clarifies that the Bank has not received the report from the external agencies who are conducting the review," the bank said.

Shares of Indusind Bank closed at Rs 688.75 on Friday, up by 1.53%.

The controversy stems from IndusInd Bank’s March 10 disclosure of derivative losses worth Rs 2,100 crore, triggered by previously unaccounted losses on forex swap transactions executed between 2017 and 2024. The losses had accumulated due to accounting discrepancies, where treasury gains were booked in profit and loss statements, but the corresponding derivative losses were not routed through net interest income (NII).

Following the announcement, the bank’s stock dropped 23%, and analysts estimated that the discrepancy could erode Rs 1,600 crore from the bank’s net worth—greater than the bank’s net profit of Rs 1,401 crore for the December 2024 quarter.

IndusInd Bank attributed the losses partly to the Reserve Bank of India’s September 2023 directive prohibiting internal trades and hedging practices, which it ceased on April 1, 2024. However, losses from prior transactions remained unresolved and went unnoticed during previous audits.

The crisis has also drawn attention to internal developments, including the exit of CFO Gobind Jain, and the share sales worth Rs 157 crore by CEO Sumanth Kathpalia and Deputy CEO Arun Khurana over the past two years.

As of March 19, IndusInd Bank’s stock had partially recovered to Rs 692 after hitting a low of ₹655 on March 11, but it remains down over 53% in the past six months. The market now awaits further clarity from the ongoing forensic audit and the bank’s next steps on financial restatements and executive accountability.

In early 2024, IndusInd Bank enlisted the services of KPMG and EY to support internal teams in analyzing treasury policies, procedures, and accounting practices, including those pertaining to forex derivative contracts.

RBI's vigil 

Earlier this week, the RBI mandated IndusInd Bank's board to investigate and hold accountable those responsible for accounting inaccuracies that led to a significant decrease in the lender's market value in March. During a media briefing on Wednesday, RBI officials referred to the necessity of conducting forensic audits and accountability reviews following such incidents, without explicitly naming the bank involved. 

Deputy Governor J. Swaminathan emphasized the importance of identifying and taking actions against individuals or entities - whether internal staff, external parties, or service providers - responsible for any lapses.

“Whenever such incidents occur, we direct the boards to ensure that proper forensic and accountability studies are carried out,” said J. Swaminathan, RBI Deputy Governor. “Anyone found accountable, whether internal staff, external parties, or service providers, will be included in the investigation, and appropriate actions will be taken. Any lapses will be dealt with accordingly.”

Earlier, it was reported by ET that the RBI instructed the board of IndusInd Bank to launch an in-depth forensic investigation into the bank. The investigation will determine whether senior management had knowledge of or involvement in the discrepancies in the derivatives portfolio, resulting in a loss of nearly Rs 1,600 crore.

In the meantime, RBI Governor Sanjay Malhotra provided reassurance that the banking system remains solid and resilient.

"Overall, the system is secure, resilient, and sturdy," he stated. "We have around 10,000 non-banking financial companies (NBFCs) and approximately 1,500 cooperative banks. While about 70 cooperative banks have failed in the past 8-9 years, the impact has been minimal. Our primary focus is on minimizing any negative repercussions."