With 1st quarterly loss in 19 yrs, IndusInd vows to clean up mess

Bank expects to propose CEO names much ahead of June 30 deadline

Sunil Mehta, non-executive chairman of IndusInd Bank, who addressed the analysts after the earnings for the fourth quarter of financial year 2024-25 (Q4FY25), started with stating the obvious! “It is typically unusual for a part-time executive chairman to address investors and analysts,” he said.

 

It was unusual because the managing director and chief executive officer (MD&CEO) of an institution addresses the earnings call. However, that was not the case this time as IndusInd MD & CEO Sumant Kathpalia stepped down last month after taking responsibility for ₹1,960 crore accounting lapses in its derivatives portfolio. Deputy CEO Arun Khurana followed suit.

 

It did not end there. More skeletons tumbled out of the closet after accounting lapses were discovered in the microfinance (MFI) portfolio. Today, following the board meeting, the bank said it “suspected” fraud and involvement of employees in its MFI businesses.

 

“The board is also in the process of taking necessary steps to assess roles and responsibilities, and fixing staff accountability,” Mehta said.

 

All these meant the lender reported its first Q4 loss in 19 years at ₹2,329 crore. 

 

“The board and the management acknowledge that the lapses have been unfortunate for an institution like our bank. However, the board along with the management has shown a strong resolve to address all the identified issues in a timely and comprehensive manner,” Mehta said in his first address since fraud hit the fifth-largest private sector bank of the country.

 

The lender said the board and the management are committed to taking all necessary steps to restore trust and confidence (of stakeholders) in the institution while pointing out that the balance sheet remains robust after fully absorbing the adverse financial impact. 

Following the exit of its CEO and deputy CEO, the bank has formed a committee of executives comprising Soumitra Sen and Anil Rao to run the affairs of the bank under the guidance of the oversight panel of the board. The Reserve Bank of India (RBI) has asked the bank to submit CEO names by June 30, 2025.

 

Mehta said the board is at an advanced stage in the selection process and is confident that recommendations will be submitted to the RBI well in advance of the timeline. He said the bank is determined to identify and expeditiously induct a strong leadership with right competencies, ethics and ability to build and scale a robust franchise. He said the board and the management team are committed to ensure a smooth transition.

 

Commenting that the bank is currently reviewing all the lines of accounting and has taken a conservative view in some of the practices, he emphasised that compliance with regulations in letter and spirit is “non-negotiable”.

 

“Growth will be achieved with a cultural shift towards the right compliance and governance framework, with open and honest communication with all stakeholders (sic),” IndusInd said in a statement.

 

Mehta is not new to crisis management as he was the chairman of Punjab National Bank when Nirav Modi-Mehul Choksi fraud hit the state-run lender. He was also a non-executive independent director of IL&FS Investment Managers and a member of the reconstituted Yes Bank board.