Things 'should soon settle down': RBI on IndusInd Bank's measures

RBI says it is satisfied with IndusInd Bank's accounting clean-up post derivatives irregularities but stresses it will act if necessary and has sharpened supervision tools

The Reserve Bank of India (RBI) on Friday said things “should soon settle down” at IndusInd Bank and indicated it is satisfied with the clean-up the lender has undertaken after accounting discrepancies in its derivatives and other portfolios.

 

The private-sector lender’s managing director and chief executive officer (MD & CEO) and his deputy resigned in April.

 

RBI Governor Sanjay Malhotra said “episodes” like accounting discrepancies are not worrying as long as they are infrequent. The RBI has sharpened its supervisory tools after the IndusInd Bank episode to anticipate “red flags” in advance.

 

Shares of IndusInd Bank soared 2.50 per cent on the BSE on Friday.

 

“The MD & CEO has resigned, taking moral responsibility. That should be good enough. If there are other criminal acts that have happened then the law will take its course, and in case RBI has to step in and take any action, then RBI will not be failing in its duties,” said Malhotra, adding that the banking system is robust.

 

“These episodes will happen and they don’t bother us too much as long as they are far and few between. The bank has taken enough number of steps to improve their accounting and other practices. On the whole, the bank is doing well,” he said.

 

 

RBI Deputy Governor Swaminathan J said the priority was to ensure accounting of discrepancies at IndusInd Bank, supported by internal and external audits. The bank has done that by reporting a net loss of Rs 2,329 crore in Q4 FY25, as it ramped up provisions and reversed incorrectly booked revenue and income entries linked to accounting discrepancies in the derivatives and microfinance segments discovered during the quarter.

 

Along with its worst-ever quarterly loss, the bank disclosed that its board suspects fraud involving certain employees with significant roles in accounting and financial reporting. The board asked steps be taken under laws, including reporting to regulatory authorities and investigative agencies, and fixing the accountability of all persons responsible for these lapses.

 

Swaminathan said that RBI wanted a forensic audit and accountability process to be undertaken to ensure those responsible are held accountable. The examination of fraud must be completed, following which law enforcement should take over. This has been accomplished, he said.

 

RBI has ensured that “no (IndusInd Bank) customer is put to loss or inconvenience, and there is no systemic impact arising out of these episodes”.

 

“Whatever was supposed to play out over the last three months is more or less on track and I am sure it should, if not immediately, at least very soon settle down and be back to normal,” Swaminathan said.

 

Sumant Kathpalia and Arun Khurana resigned as MD & CEO and Deputy CEO, taking moral responsibility for the loss incurred due to accounting lapses highlighted by the Grant Thornton report. The bank is now run by a committee of executives, comprising Soumitra Sen, Head – Consumer Banking, and Anil Rao, Chief Administrative Officer, until a new CEO is appointed. The deadline to submit names of probable CEOs to RBI ends on June 30.