IndusInd Bank’s Derivative Accounting Lapses Uncovered During CFO Exit Interview with RBI

New Delhi, March 18, 2025 – IndusInd Bank has come under regulatory scrutiny after discrepancies in its derivative accounting practices were uncovered during an exit interview with the Reserve Bank of India (RBI). The revelation led to a 2.35% decline in the bank’s net worth, erasing nearly ₹20,000 crore in market capitalization.

Sources indicate that Gobind Jain, the former Chief Financial Officer (CFO) of IndusInd Bank, who resigned on January 17, 2025, had a detailed exit interview with RBI officials. During the discussion, concerns regarding the bank’s inadequate accounting for certain derivative transactions reportedly emerged.

Regulatory Exit Interview Uncovers Financial Discrepancies

Any key managerial resignation in a bank typically involves a standard exit interview with RBI officials. However, sources familiar with the development suggest that Jain’s departure was accompanied by serious lapses in derivative accounting.

“Jain had a rather long exit interview with central bank officials,” a source close to the matter said. “The timing and conditions of his exit sparked regulatory concerns.”

Jain could not be reached for comment. However, sources claim that he may have flagged accounting deficiencies in the bank’s treatment of derivative trades before stepping down.

IndusInd Bank’s Internal Review Reveals Accounting Gaps

On March 10, 2025, IndusInd Bank informed the stock exchanges that an internal review of its “Other Asset and Other Liability” accounts in its derivatives portfolio had brought significant accounting discrepancies to light.

The internal probe was triggered by RBI’s “Master Direction on Investment Portfolio of Commercial Banks (2023)”, which came into effect on April 1, 2024. The new framework introduced stricter norms on the classification, valuation, and operation of derivative transactions, prompting banks to reassess their accounting practices.

“The Bank has also, in parallel, appointed a reputed external agency to independently review and validate the internal findings. A final report of the external agency is awaited, basis which the Bank will appropriately consider any resultant impact in its financial statements,” IndusInd Bank stated in its stock exchange filing.

The financial impact of the discrepancies is currently estimated at ₹1,500–₹1,600 crore in Q4 FY25, although industry experts warn that this figure may be revised upward once the external audit is complete.

Whistleblower Allegations and Prior Internal Warnings

Market sources suggest that a whistleblower had internally raised red flags about these accounting deficiencies as early as August–September 2024. However, the bank’s board has not publicly confirmed whether it had prior knowledge of the issue.

Additionally, sources claim that Jain had argued that the discrepancies should have been disclosed in the Q3 FY25 financial results, rather than waiting until a full internal assessment was completed.

“The bank took the stand that it should fully evaluate the extent of corrective action required before making a disclosure,” said a senior executive familiar with the discussions.

However, some regulatory experts believe that earlier disclosure of even preliminary estimates could have been a more transparent approach given the severity of the issue.

RBI Intensifies Scrutiny, PwC Appointed for Independent Audit

Following Jain’s exit, RBI increased its scrutiny of IndusInd Bank’s financial records. By the end of February 2025, a preliminary estimate of the financial hit was determined, prompting RBI to insist on an external review by an independent firm.

In late February, IndusInd Bank appointed PwC (PricewaterhouseCoopers) to conduct a detailed investigation into the derivative accounting deficiencies. The final report is expected to be submitted by the end of March 2025.

According to a senior banking official, RBI wanted a third-party assessment to ensure that all lapses were properly identified and addressed.

“Since the review process was taking longer than anticipated, RBI directed the bank to appoint an independent agency to conclude a detailed investigation,” said a source with knowledge of the matter.

IndusInd Bank’s CEO Addresses Investors, Denies Direct Link to CFO’s Exit

On March 10, 2025, Sumant Kathpalia, MD & CEO of IndusInd Bank, addressed investors, acknowledging that Jain had knowledge of the derivatives transactions but dismissed speculation that his resignation was directly linked to the issue.

“The then CFO, Jain, was aware of this (derivatives) transaction. But I don’t think it is linked to only this transaction. He had a different narrative on why he was leaving,” Kathpalia said during an investor call.

When IndusInd Bank first announced Jain’s resignation on January 18, 2025, the official reason cited was that he was moving on to explore new professional opportunities and travel to the U.S. for his daughter’s education.

Despite this, questions persist regarding whether Jain explicitly raised concerns about the accounting deficiencies with the bank’s board before his departure.

Financial Market Impact and Investor Sentiment

IndusInd Bank’s stock took a significant hit following the disclosure. The market capitalization of the bank eroded by ₹20,000 crore, as investors reacted to the potential financial impact and regulatory scrutiny.

At 9:30 AM on March 18, 2025, shares of IndusInd Bank were trading at ₹1,860, down 0.6% from the last close on the NSE. Despite the recent decline, the bank’s stock had gained nearly 20% year-to-date before the revelations.

Investor sentiment remains cautious as the banking sector watches closely for PwC’s final audit findings and RBI’s potential regulatory actions.

Developments in IndusInd Bank’s Accounting Lapses

• Exit Interview Trigger: Former CFO Gobind Jain’s exit interview with RBI revealed lapses in derivative accounting.
• Internal Audit Findings: IndusInd Bank uncovered accounting discrepancies in derivative transactions during a regulatory-mandated internal review.
• RBI’s Response: Heightened scrutiny led to an external audit by PwC, expected to conclude by the end of March 2025.
• Stock Market Impact: ₹20,000 crore market cap erosion, with investors awaiting further clarity.
• Regulatory Uncertainty: Potential penalties or corrective measures from RBI remain uncertain as investigations continue.

With financial regulators closely monitoring the situation, IndusInd Bank’s upcoming quarterly results and PwC’s final audit report are expected to provide deeper insights into the true extent of the financial impact.