Did IndusInd Bank's Board Lie To Investors?

The revelations by Securities and Exchanges Board of India's interim order regarding insider trading allegations at IndusInd Bank raise multiple concerns.

The bank's management knew at least 15 months before the rest of the world about the issues in the derivatives accounting book, according to the markets regulator. Privately they acknowledged the size of the problem, its impact on capital and the need to report these numbers. But instead of informing the shareholders about it, these senior officials started dumping their stock in December 2023, SEBI said.

But the most egregious of all revelations by the regulator is the one about the board's involvement. In its interim order on Wednesday, SEBI said that IndusInd Bank had appointed KPMG to conduct an external validation of the internal findings in the derivatives accounting issue.

"It is further seen that they accordingly appointed KPMG vide Board Note dated January 29, 2024 to review the discrepancies revealed by the internal team as constituted by IBL pursuant to the RBI’s Master Direction," SEBI said in its order.

While former Managing Director and Chief Executive Officer Sumant Kathpalia and Deputy CEO Arun Khurana knew of the accounting gaps by December 3, 2023, the board found out a little over a month after. This appointment was never informed to exchanges.

A board note is a document floated to the board of directors by the company secretary or any other senior functionary at the bank. It serves as a way to inform the board about any material developments at the bank.

By February 2024, KPMG had concluded the external validation process and estimated a hit of Rs 2,093 crore on the bank's balance sheet because of the derivatives accounting issue.

"However, these figures were neither reported through the Exchange platform till March 10, 2025, nor were being classified to be UPSI (unpublished price sensitive information) by IBL (IndusInd Bank) till March 04, 2025," SEBI said in its order.

Still, Sunil Mehta, chairman of the bank said this month that the board was allegedly kept in the dark.

"The board, was not informed of the discrepancies, including at the time of approval of the financial results for the relevant accounting periods," Mehta told analysts after announcing the bank's fourth quarter results on May 21.

Additionally, the trades undertaken by Kathpalia, Arun Khurana, Anil Rao and others since December 2023, were never classified as those based on UPSI. SEBI noted that the board of directors of every company must maintain a structured digital database of all officials with whom UPSI has been shared. It was only on March 4, 2025 that IndusInd Bank recorded details of the accounting gaps as UPSI.

Here too, the board has missed its fiduciary responsibility.

Just to be sure, this very board is tasked with finding a new CEO for IndusInd Bank. The very board which sought a three year tenure for Kathpalia in September 2024, a whole seven months after KPMG concluded the financial hit due to derivative issues. It is also the board which recommended a two person executive committee to run the bank till a full time CEO is brought in. One of these two executives is named in SEBI's order.

The board has been given time till June 30, to send out a list of potential CEOs for the RBI to select the successor for Kathpalia.

"The board is at an advanced stage in the selection process and is confident that recommendations will be submitted to the RBI in advance of the timeline," Mehta said on May 21.

SEBI in its interim order said that the five noticees will be given a hearing in 21 days. It is also in the process of expeditiously concluding its complete examination and publish a full order.