New Delhi: At the IndusInd Bank branch in Connaught Place, New Delhi, the whir of the money counting machine fills the air. On the surface, it was business as usual at India’s fifth-largest private sector bank. But for customers like Dharampal, 52, a sense of unease had settled in. Just a few days before, on 11 March, the share price of the bank plummeted 27.17 per cent, marking its steepest single-day drop since its listing in 1998.
The sharp decline in the bank’s share price was triggered by an accounting discrepancy disclosed a day earlier, which erased thousands of crores in market capitalisation and deepened concerns over the bank’s governance and financial stability. More pointedly, the disclosure came just days after the Reserve Bank of India (RBI) granted CEO Sumant Kathpalia only a one-year extension, despite the bank’s board advocating for a full three-year term, a move widely seen as a signal of regulatory unease over IndusInd’s leadership.
“When I saw the share price fall, of course, I had a concern. I had just opened up a fixed deposit of Rs. eight lakh in my mother’s name three months ago,” said Dharampal, adding that this was his first time transacting with a private bank.
Two former chairmen of the State Bank of India (SBI), who did not wish to be named, stated that this was an accounting mishap and should have been spotted by the management.
Industry experts and analysts say that while the disclosure precipitated the share price decline, problems at the bank started well before. This included poor Q3 results, a CFO resignation and the sale of ESOPs (Employee Stock Option Plans) by the CEO and Deputy CEO from June 2024.
“I think they (Reserve Bank of India) are uncomfortable with my leadership skills,” admitted Kathpalia, who was fielding questions from analysts on the day the disclosures were made. “This is a litmus test for the bank as well as from a succession point.”
The crisis stemmed from IndusInd Bank’s foreign exchange derivatives portfolio, which had discrepancies worth Rs. 1,577 crore (2.35 per cent of the bank’s net worth as of December 2024). Following the announcement, the stock price fell from Rs 901.95 to Rs 655.85 on the Bombay Stock Exchange (BSE), but has since recovered to Rs 672.65.
On 15 March, the RBI released a statement from Puneet Pancholy, Chief General Manager, stating that “the bank is well-capitalised and the financial position of the bank remains satisfactory.”
The statement, in response to speculation around the bank after the disclosure, acknowledged that IndusInd bank had engaged an external audit team to review its systems. “As such, there is no need for depositors to react to the speculative reports at this juncture,” it read.
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Internal-external discrepancies
Banks such as IndusInd accept deposits made in foreign currencies, which mainly come from Non-Resident Indians (NRIs). On the back of attractive interest rates, NRI deposits stood at Rs. 58,600 crores as of Q3 2025.
These deposits are most commonly made in the US dollar. But once deposited, these currencies are converted into INR, which the bank can then further lend out.
However, at the time of maturity or when the NRI decides to withdraw the deposit, the funds are sent back in the foreign currency, creating a risk that the bank needs to hedge.
Charanjit Attra, a partner at the financial services practice at EY, proposed a hypothetical scenario to break down the issue. If the bank had taken borrowings or deposits in 2017 worth USD 100 and swapped it for INR 6,500, today they would have to repay that amount at INR 8,700 (current exchange rate).
“If I had not hedged that currency exposure, that would have been a loss to me,” he said, adding that the issue was exacerbated by the dollar getting stronger and the rupee getting weaker.
As a general banking practice, foreign currency deposits are usually handled by the balance sheet team and then passed on to the trading desk, which manages forex transactions.
Krishna Appala, a fund manager at CapitalMind, a SEBI-registered portfolio management service, explained that there are two legs to these transactions: an internal trade and an external trade.
“Internal trade is between the balance sheet desk and the trading desk,” said Appala, adding that it is a contract even though it takes place internally within the bank. “This happens at a swap cost, which is a fixed cost.”
The external trade is a transaction with the market, executed at mark-to-market (MTM) rates. Since MTM rates fluctuate, the bank maintains margins to ensure that the risk technically remains nil. However, a mismatch arose between the fixed cost of the internal leg and the MTM valuation of the external leg, leading to accounting discrepancies.
Until September 2023, banks were allowed to conduct internal swap transactions. However, in that month, the RBI introduced new guidelines prohibiting internal swaps. The rationale was that these transactions were not true hedges, as they merely shifted exposure from one internal desk to another within the bank.
From April 2024 onwards, IndusInd Bank revisited its books, analysing open positions dating back five to seven years. The bank identified discrepancies, engaged external auditors and made the subsequent sock exchange disclosure in March 2025. Discrepancies worth Rs 1,577 crore were identified.
“The bank’s profitability and capital adequacy remains healthy to absorb this one-time impact,” said Kathpalia during the conference call. “I would like to just close it (the losses) in quarter four [of FY 2025] if we can.”
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Hunt for new CEO?
The RBI’s September 2023 circular impacted all banks. However, it remains unclear why IndusInd is facing a more significant issue than its peers.
“Following the bank’s disclosure, the RBI has initiated a review of derivatives exposures across select private and state-run banks,” said Appala. “While it remains too early to determine whether the issue is isolated or more widespread, stricter regulations and corrective measures are expected as the regulator works to restore stability.”
But IndusInd displayed warning signs even before the disclosures were filed. On 17 January 2025, just before the declaration of the Q3 results, the Chief Financial Officer of IndusInd Bank, Gobind Jain, resigned.
Kathaplia downplayed the timing of the resignation during his conference call.
“He was aware of this transaction. His resignation is in the public domain. But I don’t think it is linked to only this transaction, he had a different narrative on why he was leaving,” he said.
The bank’s Q3 results were also poor, relative to the same quarter the previous year. Financing profit declined from Rs 672 crore (December 2023) to a loss of Rs 495 crore (December 2024), net profit declined from Rs 2,298 crore to Rs 1,401 crore and gross NPA (non-performing assets) increased from 1.92 per cent to 2.25 per cent.
And finally, RBI’s one-year extension of Kathpalia’s appointment raised eyebrows. Some believed it was a strategic move by the RBI to ensure the bank had time to find an adequate replacement.
“We can say that the RBI did not find the current CEO eligible for this size of a bank,” said Vivek Singhal, founder & CEO, VSpartans Consultants, a SEBI-registered portfolio manager. “Why one year? Because they don’t want the bank to be without a CEO. To find the right candidate, it will take at least five to six months.”
Financial sector experts say that while the IndusInd bank issue is damaging to the bank’s brand, it is not uncommon for the regulator to closely monitor private sector banks.
A similar situation unfolded with RBL Bank a few years ago when concerns arose about its credit quality. At that time, the RBI issued a clarification to reassure shareholders that there was no systemic risk, similar to what the regulatory body did in the case of IndusInd Bank.
“There are other mid-sized banks whose share price has gone down. Banking as a sector is highly sensitive to all this,” said Attra. “But I don’t think there will be any impact on the functioning of the banks. Of course, there will be more scrutiny by the boards across all of them now.”
Even customers like Dharampal are not too worried. He works at a large hotel in Delhi, which does business in the crores with IndusInd bank.
“I come to this branch and deposit all the cheques, so I know how much business the company does,” he said. “If they are not worried and are continuing to use IndusInd bank services, it puts my mind at ease.”
The author graduated from Batch 1 of ThePrint School of Journalism.
(Edited by Theres Sudeep)