IndusInd Bank Faces Scrutiny Over Rs.2,000 Crore Derivatives Loss: Is It Fraud?

IndusInd Bank, a major private sector bank in India, is facing serious questions about a large loss of nearly ₹2,000 crore related to its foreign exchange derivative transactions. The issue has attracted attention from the bank’s auditors, who are now asking whether the situation is simply a mistake in accounting, a technical error, or something more serious like fraud.

What Is the Problem?

The controversy centers around how IndusInd Bank handled certain foreign exchange trades. In March, the bank admitted that its derivatives portfolio was overvalued by around 2.35%, leading to a total loss of about ₹2,000 crore. The concern now is whether this misstatement was accidental or deliberate.

So far, the bank has described the issue as an “accounting discrepancy” in its official statements to the stock exchanges and credit rating agencies. But this explanation may not be enough anymore. Since the losses are significant, and auditors have legal responsibilities under Indian law, they may be required to take further action if this turns out to be fraud.

What Caused the Loss?

According to reports, the losses happened because the bank used two different accounting methods for its foreign exchange trades:

• For internal trades (between teams inside the bank), it used accrual accounting, which records gains and losses as they occur over time.
• For external trades (with other banks), it used mark-to-market accounting, which updates values based on the current market price.

This mismatch caused the bank to report higher profits in earlier years and delay recording losses. As a result, the losses are now being recognized all at once, creating a major problem.

Legal and Regulatory Concerns

As per the Companies Act, 2013, if auditors detect a fraud involving more than ₹1 crore, they are legally required to report it to the Ministry of Corporate Affairs (MCA). Even for smaller amounts, they must inform the company’s board or audit committee.

Given the large value of losses, this case might fall under the fraud category. If that happens, IndusInd Bank would have to make official regulatory disclosures and might face further investigations.

Who Will Decide?

The final decision on how this issue should be labeled lies with the bank’s board of directors, headed by Chairman Sunil Mehta, and the audit committee, chaired by Bhavna Doshi. These bodies are expected to discuss the findings before finalizing the bank’s annual accounts.

Their decision will shape how the issue is reflected in the 2024–25 annual report, and it will influence the official audit report as well.

Forensic Review and Insider Trading Concerns

A forensic review conducted by audit firm Grant Thornton found that IndusInd’s CEO Sumant Kathpalia and Deputy CEO Arun Khurana had sold shares in the bank even though they were aware of the accounting issues. This happened before the information was made public, which has raised concerns about insider trading.

Both executives resigned, taking moral responsibility for the accounting lapses.

RBI Steps In, Moody’s Downgrades Bank’s Profile

To help the bank recover, the Reserve Bank of India (RBI) approved the formation of a temporary executive committee to manage daily operations. At the same time, global rating agency Moody’s downgraded IndusInd Bank’s standalone financial profile, citing weak internal controls and poor oversight.

Why This Case Matters

This situation could become a major example for the Indian banking sector. All Indian banks are required to report confirmed fraud cases to the RBI through the Fraud Monitoring Return (FMR). According to the RBI, fraud includes financial deception, breach of trust, irregular foreign exchange transactions, and falsifying records.

Whether this case is officially declared as fraud or not will have long-term consequences for regulators, investors, and the banking industry.