‘Accounting lapses in derivative portfolio to cost IndusInd Bank ₹1,979 crore’

IndusInd Bank on Tuesday said that accounting lapses in the derivative portfolio will have a negative impact of ₹1,979 crore on the bank’s net worth.

The bank has assessed an adverse impact (on a post-tax basis) of 2.27% to its net worth as of December 2024 on account of discrepancies relating to derivative deals.

The private sector lender last month reported the accounting lapses in the derivative portfolio estimated to have an adverse impact of approximately 2.35% of the bank’s net worth as of December 2024.

Following this, the bank appointed external agency PwC to assess the impact on the bank’s balance sheet, lapses at various levels and suggest remedial action.

The agency in its report has quantified the negative impact of the above as of June 30, 2024, at Rs 1,979 crore, IndusInd Bank said in a regulatory filing.

The bank will appropriately reflect the resultant impact in the financial statements for 2024-25 and continue to take suitable steps to augment the internal controls relating to the derivative accounting operations, it added.

Meanwhile, the IndusInd Bank’s board has also hired Grant Thornton to conduct a forensic audit into accounting lapses.

As per the mandate, Grant Thornton would conduct a comprehensive investigation to identify the root cause of the discrepancies and assess the correctness and impact of the accounting treatment of the derivative contracts with regard to the prevailing accounting standards.

Additionally, the firm would identify any lapses and establish accountability with regard to discrepancies in accounting.

Soon after the disclosure by the bank, IndusInd International Holdings Ltd (IIHL) — the Mauritius-based promoters of the private sector lender — has committed to infuse capital into the bank in case there is a requirement.

IIHL, the investment arm of Hinduja Group, has recently got RBI’s in-principle approval to raise its stake in IndusInd Bank from 16 per cent to 26 per cent.

Last week, Reserve Bank Governor Sanjay Malhotra had described the accounting lapses at IndusInd Bank and the restrictions on New India Cooperative Bank as “episodes” and not “failures”.

With over 10,000 non-banks and around 1,500 cooperative banks, occasional “episodes” are inevitable and those do not mean the system failed or even the entities concerned failed, he had said.

“These are not even failures, they’re episodes. In such a large system with so many entities these things will happen again,” Mr. Malhotra had said, adding “the banking system remains safe, secure, and robust at a systemic level..

During the past eight to nine years, about 70 of the 1,500 cooperative banks have faced issues, which is a small fraction, the governor had said.