RBI’s Malhotra Dismisses IndusInd Lapses as Isolated, Affirms System Stability

Malhotra Calls Bank Issues Isolated, Stresses Financial System Resilience

In a carefully worded post-policy briefing on April 9, Reserve Bank of India Governor Sanjay Malhotra reaffirmed the robustness of India’s banking sector, describing recent high-profile controversies involving IndusInd Bank’s accounting discrepancy and the New India Cooperative Bank’s fraud episode as isolated “episodes,” not systemic “failures.”

Malhotra emphasized that India’s banking framework, despite being vast and multifaceted, remains “safe, secure, and robust”. With over 1,500 cooperative banks and 10,000 NBFCs, occasional problems are statistically likely and should not be conflated with systemic instability, he stated during the press conference following the RBI’s first bi-monthly monetary policy announcement of FY26.

• RBI Governor: No systemic threat from IndusInd or cooperative bank episodes

• 70 out of 1,500 cooperative banks have faced issues over 9 years

• Investigation ongoing; appropriate action to follow, says RBI Deputy Governor

IndusInd Bank’s Rs 1,577 Crore Accounting Discrepancy Under Probe; RBI to Act on Findings

Deputy Governor Swaminathan Janakiraman addressed questions related to IndusInd Bank’s reported Rs 1,577-crore derivatives accounting lapse, reiterating that a thorough investigation is underway, and action will be taken based on the findings. While the RBI has not yet disclosed the full scope of the alleged discrepancy, regulatory circles have intensified scrutiny of the private lender’s internal controls and compliance layers.

The RBI’s current stance, however, does not involve intervention in the bank’s management structure, although the issue remains under active assessment. “Based on the outcome of the investigation, those responsible will be identified and held accountable,” Janakiraman assured.

• RBI rules out management shakeup at IndusInd for now

• Lapse occurred in derivatives portfolio; triggered regulatory scrutiny

• Case treated as an operational lapse, not institutional weakness

New India Cooperative Bank Embezzlement Triggers Restrictions, But Sector Outlook Steady

The issue of Mumbai-based New India Cooperative Bank also resurfaced during the conference. The bank, currently facing severe restrictions after a Rs 122 crore embezzlement scandal, saw arrests and property attachments earlier this year. The central bank reiterated its commitment to managing such failures without destabilizing the broader cooperative banking ecosystem.

Malhotra clarified that over the last eight to nine years, only about 70 cooperative banks out of 1,500 have experienced serious issues, representing a minimal fraction of the sector. While reputational concerns arise, the frequency of such failures remains statistically limited.

The central bank’s multi-pronged supervision architecture—which includes regulatory inspections, compliance audits, internal monitoring by banks, and financial disclosures—is designed to preempt and contain such instances, the RBI chief emphasized.

• New India Cooperative Bank under RBI-imposed operational restrictions

• RBI reassures that cooperative bank crises are rare and manageable

• Focus on early detection and containment through regulatory oversight

RBI’s Regulatory Strategy: Collaboration, Surveillance, and Systemic Fortification

Malhotra highlighted that the RBI is focused on minimizing both the frequency and impact of such financial irregularities. He stressed the importance of continuous improvement across the entire ecosystem, through collaborative engagement between regulators and financial institutions. “We have various tools—regulations, supervision, internal audits. Banks have their own business unit checks and compliance teams. All of us must work together,” he said.

This approach, he added, is critical in maintaining financial stability and depositor confidence, especially in a period of volatile global financial conditions triggered by recent US tariff policies and ongoing geopolitical risks.

• RBI emphasizes joint responsibility between banks and regulators

• Proactive oversight model aimed at preventing systemic threats

• Sector-wide resilience remains intact despite isolated shocks