IndusInd Bank Shares Tumble as CEO Resigns Over Derivatives Portfolio Irregularities

Private sector lender IndusInd Bank saw its shares fall sharply in early trade on Wednesday, April 30, following the resignation of its Managing Director and CEO, Sumant Kathpalia.

This development came amid ongoing concerns over discrepancies in the bank’s derivatives portfolio.

In his resignation letter, Kathpalia wrote, “I undertake moral responsibility, given the various acts of commission/omission that have been brought to my notice. I would request that my resignation be taken on record at close of working hours today.”

This resignation comes soon after the Reserve Bank of India (RBI) approved only a one-year extension to Kathpalia’s tenure, even though the bank had sought a three-year term.

At 9:20 am, IndusInd Bank’s shares were trading at Rs 816.90 on the NSE, down 2.4 percent.

Deputy CEO Also Steps Down Amid Crisis

Just days earlier, on April 28, the bank’s Deputy CEO Arun Khurana also resigned.

In his resignation letter, Khurana stated, “Considering the recent unfortunate developments, wherein the Bank determined an adverse accounting impact on P&L, on account of incorrect accounting for internal derivative trades, I having oversight of the Treasury Front office function, as the Whole Time Director, Deputy CEO and a part of Senior Management of the bank, hereby resign, effective immediately.”

IndusInd Bank had earlier revealed that these accounting lapses would result in a negative impact of Rs 1,979 crore on its net worth.

The bank estimated that this would translate to a 2.27 percent post-tax hit on its net worth as of December 2024.

Board Takes Steps to Address the Crisis

On April 26, the bank’s board announced that it was taking “necessary steps” to hold responsible individuals accountable for the accounting lapses and to restructure senior management responsibilities accordingly.

The bank previously reported that the discrepancies in the derivative portfolio would adversely affect approximately 2.35 percent of its net worth as of December 2024.

Brokerage Downgrades Bank Amid Management Turmoil

Following the resignations, domestic brokerage Emkay Global downgraded its rating on IndusInd Bank from ‘add’ to ‘reduce’.

It cited the series of high-level resignations, including that of the CEO and MD, as a cause for concern.

The brokerage warned of potential disruptions to business and margins, a possible deposit run-down, stress on asset quality, attrition in middle management, and the likelihood of the RBI appointing a nominee to the board.

It also flagged the possibility of a public sector banker being named as the new MD and CEO, similar to developments at Bandhan Bank and RBL Bank.

Emkay noted that although the stock had recently seen a recovery due to assurances of a smooth management transition, this confidence now appears undermined.

Interim Leadership and Oversight Established

In response to the crisis, IndusInd Bank constituted an executive committee, including Soumitra Sen, Head of Consumer Banking, and Anil Rao, Chief Administrative Officer, to oversee day-to-day operations.

This committee will work under the guidance of a Board-level Oversight Committee.

The Oversight Committee will be chaired by the Chairman of the Board and will include the heads of the Audit Committee, the Compensation and Nomination & Remuneration Committee, and the Risk Management Committee. The Reserve Bank of India has approved this arrangement.

“The Bank is taking all necessary steps to ensure stability and continuity of its operations while maintaining high standards of governance,” the bank stated in a filing.

Financial Impact and Auditor Confirmation

IndusInd Bank earlier disclosed that an external auditor had determined a cumulative adverse accounting impact on the profit and loss statement of Rs 1,959.98 crore as of March 31. This aligns closely with the figure disclosed by the bank on April 15.

Khurana, in his resignation letter to the Board, offered his assistance in transitioning his responsibilities.

He wrote, “Lastly, I would like to take this opportunity to thank and appreciate the Board in believing and entrusting me with responsibilities through my career with the Bank and I wish the Bank all the best for the future.”