On any given day, a 30-year-old bank reporting its largest-ever quarterly loss would have been the headline of the day. But not for IndusInd Bank Ltd.
Over two months since the bank disclosed that it had detected certain discrepancies in its derivatives portfolio, it has now declared that the multitude of accounting gaps led to a suspicion of fraud. The board said that it is reaching out to appropriate authorities and was in the process of assigning due accountability.
The independent auditors at the bank, MSKA & Associates, went a step further. According to their note, submitted along with the fourth quarter results, the auditors said that investigations and review reports have revealed the "involvement of senior bank officials and former key managerial personnels, in overriding key internal function" across areas.
The auditors also said that basis their evaluation of their findings, they too suspect offences involving fraud may have been committed at the bank.
Both the board and auditors have stayed away from any accountability in the matter though. Instead choosing to blame unnamed officials and management, including the chief executive officer and deputy CEO who have now resigned.
Let's take a look at what all the board and auditors did not find all this while.
The bank apparently entered a series of derivatives transactions between FY16 and FY24, called internal trades. These were not in consonance with accounting guidelines, the bank said in its notes to accounts.
In the microfinance portfolio, the bank was incorrectly booking interest income and fee income, over the first three quarters of FY25. These were reversed in January, the bank says.
The bank found that some microfinance accounts were wrongly being classified as standard. These have now been moved to NPA. The total financial hit to the bank is nearly Rs 2,000 crore due to this. Considering Microfinance loans are small value, the number of accounts in which these issues were found could be huge.
Unsubstantiated balances were found in the other assets portion of the balance sheet. It is difficult to think that any amount in a bank could be termed unsubstantiated.
The bank found some other accounting issues as well, many from past years. Though the amounts involved here were small.
The same board, which missed these crucial accounting issues at the bank (an audit committee of the board is required to review numbers before releasing them), is now talking about hiring a new CEO.
During an analyst call hosted by the bank on Wednesday, Non-executive Chairman Sunil Mehta said that the board was in advanced stages of finding suitable CEO candidates. These names would be submitted to the Reserve Bank of India well before the deadline of June 30 and the regulator will finally decide who will take over.
Will IndusInd Bank have to turn to a public sector banker to come in and take over the lender? Its peers have done that and successfully so. While growth generally takes a back seat, stability is usually a great outcome in these situations. But the final call in the matter will still be with the RBI.
This brings us to the regulator. So far, the RBI has largely been quiet about the ongoing issues at IndusInd Bank, save for a March 15 statement aimed at calming depositors from withdrawing too much from their accounts.
In the past, in situations such as Yes Bank, RBL Bank and even small lenders like Dhanlaxmi Bank, the RBI has immediately placed an observer director on the board. This is to have direct overview of how things are being conducted at the bank. No such appointments have been made at IndusInd Bank yet.
Would the RBI do that next?
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