SFIO interacts with IndusInd Bank officials over accounting discrepancies

IndusInd Bank said SFIO has met bank officials and will seek specific details on accounting issues linked to internal derivative trades, other assets and liabilities, and microfinance income recogniti

Private sector lender IndusInd Bank on Friday said the Serious Fraud Investigation Office (SFIO) has interacted with bank officials this week and will send a written communication seeking specific details related to the accounting discrepancies identified at the bank.

 

In a regulatory filing, the bank said that under the Reserve Bank of India’s Master Directions on Fraud Risk Management in Commercial Banks (including Regional Rural Banks) and All India Financial Institutions dated July 15, 2024, any fraud involving Rs 1 crore or more reported to the Reserve Bank of India (RBI) must also be reported to the SFIO, Ministry of Corporate Affairs (MCA), in the same format. Accordingly, matters relating to the accounting of internal derivative trades, certain unsubstantiated balances under “other assets” and “other liabilities”, and issues linked to microfinance interest and fee income were reported to the SFIO on June 2, 2025.

 

Earlier reports had indicated that the MCA ordered an SFIO probe into IndusInd Bank after statutory auditors and forensic reports flagged significant accounting irregularities, citing public interest concerns. This development comes even as the Mumbai Police’s Economic Offences Wing (EOW) is preparing to close its preliminary inquiry after finding no evidence of fund siphoning or diversion.

 

IndusInd Bank reported a net loss of Rs 2,329 crore in the January–March quarter (Q4FY25), after sharply increasing provisions and reversing incorrectly booked revenue and income entries linked to accounting discrepancies in its derivatives and microfinance businesses discovered during the quarter.

 

In March 2025, the bank disclosed that an internal review had uncovered discrepancies in its derivatives portfolio. It subsequently appointed external agencies to assess the extent of the impact and identify the root cause. Investigations revealed that between FY16 and FY24, the bank had entered into several derivative transactions where the accounting treatment was not in line with prescribed accounting guidelines. This resulted in the recognition of notional income in the profit and loss account, with corresponding balances reflected under assets over multiple years. The bank has since written off Rs 1,959.98 crore of such accumulated notional profit in FY25.

 

In addition, the lender set off Rs 595 crore of unsubstantiated balances in “other assets” and “other liabilities”. A review of the microfinance portfolio also revealed incorrect recognition of interest income of Rs 673.82 crore and fee income of Rs 172.58 crore. The reversal of these entries led to an adverse impact of Rs 422.56 crore in Q4FY25.

 

The bank further identified misclassification of certain microfinance loans as standard assets, along with the accrual of interest income on these accounts. After correcting the classification, the bank provided for these loans at 95 per cent, aggregating Rs 1,791 crore. The provision, along with the reversal of interest income, resulted in an adverse impact of Rs 1,969 crore on the profit and loss account as of March 31, 2025.

 

The lender said its former managing director and chief executive officer Sumant Kathpalia and former deputy chief executive officer Arun Khurana have stepped down, taking responsibility for losses of nearly Rs 1,960 crore in the derivatives portfolio. The current management is also taking steps to claw back bonuses paid to these individuals.