This is how IndusInd Bank’s derivative losses unfolded. Should depositors worry?

Amid the turmoil, the exit of the bank’s Chief Financial Officer (CFO) Gobind Jain, and the decision of CEO Sumant Kathpalia and Deputy CEO Arun Khurana to sell shares worth Rs 157 crore over the last two years, have been spotlighted.

The stock has revived from levels of Rs 655 on March 11 to levels of Rs 692 around midday on March 19. Over the last six months, the IndusInd Bank share price has declined more than 53%.

What happened on March 10?

IndusInd Bank disclosed that an internal review of its derivative portfolio had revealed a potential 2.35% adverse impact on its net worth, which would have an impact of approximately Rs 2,100 crore on the bank.

As per directives on investments issued by the RBI in September 2023, banks are prohibited from conducting internal trades/ hedging and, accordingly, IndusInd Bank ceased internal trades from April 1 2024.

However, during an internal review, the bank identified certain discrepancies, wherein the accounting of losses on forex derivatives/ swap transactions executed prior to April 2024 (over the past 5-7 years) to hedge forex deposits/ debt were not recognised through NII (net interest income), while the corresponding treasury gains were recognised in the profit and loss (P&L) statement.

Derivatives are used by the treasury department to convert forex deposits/ borrowings into rupees.

Was the disclosure by the bank prompted by the RBI?

Banking sources said it was probable that IndusInd Bank was aware of the scale of the problem long before they claimed to have discovered it, and that the disclosure was ultimately prompted by the RBI.

The bank’s handling of internal trades and accrued interest differential has raised questions, as it appears that these transactions were not fully unwound on a daily basis. As a result, the loss accumulated over time, instead of being adjusted gradually. This is a likely breach of accounting norms.

The fact that a significant gap in the balance sheet went unnoticed for an extended period is surprising, given that all foreign exchange trades and positions are fully recorded on a central system by the treasury and finance department. The bank seems to have been unaware of holding a risky position at any given time, even though this information is readily available on the central system.

When and how much stake did IndusInd Bank’s CEO and Deputy CEO sell?

CEO Kathpalia and Deputy CEO Khurana sold shares worth Rs 157 crore in 2023 and 2024, according to data from the Bombay Stock Exchange (BSE).

The data reveal that Kathpalia sold approximately 950,000 shares, valued at Rs 134 crore, between May 24, 2023, and June 25, 2024. During the same period, he purchased 396,000 shares worth Rs 34 crore.

Khurana sold 550,000 shares for Rs 82 crore over 2023-24, while acquiring 238,000 shares worth Rs 25 crore.

And when and why did the CFO leave?

CFO Jain suddenly left on January 17 this year, and his departure ahead of the bank’s disclosure on the losses, has given rise to questions about the serious lapses in its derivatives book.

Jain had put in his papers “to pursue other professional opportunities”, the bank said in an exchange filing.

On March 7, three days before the derivatives losses were disclosed, IndusInd Bank received the RBI’s approval to reappoint Kathpalia as its MD and CEO – but just for one year, from March 24, 2025, to March 23, 2026.

In September last year, IndusInd Bank’s board of directors had recommended a three-year term for its MD & CEO.

What has RBI said about the bank’s health?

Allaying the fears of depositors, the RBI last week said that IndusInd Bank depositors need not worry since the bank’s financial health remains stable.

“There is no need for depositors to react to the speculative reports at this juncture. The bank’s financial health remains stable and is being monitored closely by Reserve Bank,” the regulator said in a statement.

The bank’s deposits grew by 11% year-on-year to Rs 4,09,438 crore as of December 2024.

The bank is well-capitalised and the financial position of the bank remains satisfactory, the RBI said.

“As per auditor-reviewed financial results of the bank for the quarter ended December 31, 2024, the bank has maintained a comfortable capital adequacy ratio of 16.46 per cent and provision coverage ratio of 70.20 per cent,” the RBI said.

The liquidity coverage ratio (LCR) of the bank was at 113% as on March 9, 2025, as against regulatory requirement of 100%.