Image Source: NDTV
IndusInd Bank is now at the center of yet another massive accounting scandal, after it emerged that substantial irregularities had been reported from its financials and charges of insider trading involving top management.
Whistleblower Sparks Investigation:
A whistleblower letter to the RBI and the bank board indicated previous accounting reversals, a ₹600-crore gap in microfinance interest income, and an unsuitable executive relationship. This prompted inside and forensic audits, executive departures, and a gargantuan ₹1,960-crore provision for losses in the fourth quarter.
The crux of the problem rests in non-standard accounting practices for internal and external forex derivative transactions. Internal transactions employed accrual accounting, whereas external transactions were marked to market, resulting in inflated profits and lagging loss recognition. The ensuing losses currently amount to close to ₹2,000 crore.
Insider Trading Allegations:
A separate forensic audit concluded CEO Sumant Kathpalia and deputy CEO Arun Khurana sold IndusInd shares while they had knowledge of the accounting irregularity, which raises grave insider trading issues. Both of them had left immediately after the findings emerged.
Auditors Call for Clarification:
Statutory auditors have asked the bank to make it clear whether the problem is a technical mismatch, a deviation, or fraud. In case it is fraud, it has to be reported to the regulators under Indian regulations.
Regulatory and Market Fallout:
The Reserve Bank of India and rating agencies are keeping a close watch. Moody's downgraded IndusInd's outlook to 'negative' due to weak internal controls and oversight. The bank has suspended internal derivative trades and is taking steps to improve its governance.
Next Steps:
The board is expected to decide on the official classification of the losses as it finalizes annual accounts. Accountability for the lapses is being fixed, and the bank promises a comprehensive overhaul of its risk and audit practices.
Sources: The Economic Times, Reuters, India Today
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