IndusInd Bank Q4 results: Record ₹2,329 cr loss posted on accounting lapses

Bank books record quarterly loss after flagging accounting lapses, microfinance misreporting, and suspected fraud; FY25 profit falls 71 per cent to Rs 2,575 crore

IndusInd Bank on Wednesday reported a net loss of ₹2,329 crore in the January-March quarter (Q4FY25), as it substantially ramped up provisions and reversed incorrectly booked revenue and income entries worth over ₹2,500 crore linked to accounting discrepancies in the derivatives and microfinance segments discovered during the quarter.

 

Along with its worst ever quarterly loss, the bank disclosed its board suspects that fraud may have been committed against the bank that could involve certain employees with significant roles in the bank’s accounting and financial reporting. Accordingly, the board has directed necessary steps be taken under applicable laws, including reporting to regulatory authorities and investigative agencies, and fixing the accountability of all persons responsible for these lapses.   

 

The embattled lender, whose MD & CEO Sumant Kathpalia and Deputy CEO Arun Khurana stepped down last month taking responsibility of ₹1960 crore loss on its derivatives portfolio, asserted it has now appropriately accounted for and reflected the impact of all identified discrepancies in its financial results for Q4 and the year-ended ended March 31, 2025.

 

“The bank’s financials now reflect full and fair representation of all the concerns brought to its attention”, it said in a statement.       

 

Sunil Mehta, the chairman of the bank, said the Board and the Management acknowledge that the lapses happened have been unfortunate for an institution like our Bank.

 

“However, the Board along with the management have shown a strong resolve to address all the identified issues in a timely and comprehensive manner. The Bank has a robust Net Worth and balance sheet even after absorbing impact from all the past anomalies”, Mehta emphasised.

 

Moreover, the bank said the board is at an advanced stage in the selection process of a new chief executive officer (CEO), and is confident that recommendations will be submitted to the Reserve Bank of India well ahead of the June 30 timeline. Till a new CEO is appointed, the bank is being run by a committee of executives.

 

Despite the sharp Q4 loss, the bank reported a net profit of ₹2,575 crore for FY25, down 71 per cent year-on-year (YoY). The lender’s net interest income (NII) was down 43 per cent YoY in Q4FY25 at ₹3,048 crore while other income was down 72 per cent YoY at ₹709 crore. Net interest margin (NIM) of the lender stood at 2.28 per cent, down 168 basis points (bps) sequentially,and 201 bps Y-o-Y. One bp equals 0.01 per cent.

 

Provisions and contingencies jumped 165 per cent YoY to ₹2,522 crore in Q4FY25, compared to ₹950 crore in the same period a year ago. The bank reported slippages to the tune of ₹5,014 crore, of which ₹4,794 crore came from the retail portfolio, and ₹220 crore from the corporate portfolio. 

 

Over 70 per cent of the retail slippages came from the microfinance business. As a result, the asset quality of the bank deteriorated, with gross non-performing assets (NPA) ratio at 3.13 per cent, and net NPA ratio at 0.95 per cent.

 

In March, the bank disclosed that in an internal review it had found discrepancies in its derivatives portfolio. Later, it appointed external agencies to ascertain the damage and the root cause behind the discrepancy.

 

The investigations revealed that from FY16 to FY24, the bank entered into several derivative transactions wherein the accounting followed was improper and not in consonance with accounting guidelines. This incorrect accounting resulted in recognition of notional income in the Profit and Loss Account, with corresponding balance in assets account over the years till FY24. As a result, the bank has written off ₹1,959.98 crore “notional profit” accumulated since FY16 in FY25.

 

Additionally, the bank has set off ₹595 crore of unsubstantiated entries in “other assets and liabilities”. Further, following the review of microfinance business, the bank has discovered incorrect recording of interest income of ₹673.82 crore and fee income of ₹172.58 crore. The bank has reversed this incorrect recording resulting in an adverse impact of ₹422. 56 crore during Q4FY25.

 

Moreover, the bank also discovered misclassification of certain microfinance loans as standard assets along with accrual of interest income. The bank corrected the misclassification and provided for these at a rate of 95 per cent aggregating to ₹1,791 crore. The provision, together with a reversal of interest income, resulted in an adverse impact of ₹1,969 crore to the P&L account as of March 31, 2025.

 

According to the bank, its balance sheet remains healthy after absorbing all these impacts, with a capital adequacy ratio of 16.24 per cent, provision coverage ratio of 70 per cent and average liquidity coverage ratio (LCR) of 118 per cent, along with excess liquidity of ₹39,600 crore.

 

The bank’s advances grew marginally by 1 per cent YoY but declined sequentially by 6 per cent to ₹3.45 trillion. Deposits, on the other hand, declined sequentially but grew 7 per cent YoY to ₹4.10 trillion, with term deposits growing 16 per cent YoY and 4 per cent sequentially, and current account savings account (CASA) declining 7 per cent YoY and 6 per cent sequentially to ₹1.34 trillion. 

Key adjustments

 

• Reversed ₹1,960 crore in other income due to derivatives-related discrepancy
• Reversed ₹423 crore revenue (net of interim provision) due to accounting error in MFI business
• Set off ₹595 crore from unsubstantiated rise in “other assets and liabilities”
• Recognised ₹3,509 crore in MFI slippages, leading to ₹178 crore interest income reversal