IndusInd Bank Board Should Have Been Superseded, Says Former RBI ED Pant
If people lose trust in foreign banks, in private banks, in banking as such, there are a lot of people waiting to come in and there is a lot of disintermediation, she said.
After the board of IndusInd Bank called the accounting discrepancy a 'suspected fraud', it should have been superseded, Former Executive Director of the Reserve Bank of India, Deepali Pant, told NDTV Profit.
"If people lose trust in foreign banks, in private banks, in banking as such, there are a lot of people waiting to come in and there is a lot of disintermediation," she said. "This is a death knell really and I would have suspended and superseded the entire board."
Even if the lender's capital adequacy or asset quality are at healthy levels, it does not answer the question of whether a governance failure has occurred. Looking at the current newsflow, IndusInd Bank's economic prospects do not look good for FY26 and FY27, Pant said.
Adding to the chat, former chairman of State Bank of India Dinesh Khara also said that there is a need for tightening the processes at the bank and also to have a culture for compliance which is essential.
He said that a tone from the top and also the culture of the organisation is essential.
Hetal Dalal, president and chief operating officer of IiAS, said that the current situation is a failure of internal audit of the bank.
Abizer Diwanji, founder of NeoStrat Advisors LLP, said that before talking about superseding the board, we need to get more information on the nature of the accounting lapses at the bank.
"Courses for horses. Take the example of Yes Bank where they did do that, because the gravity of the situation was as such. If the gravity of this situation is as much, then it will happen," Diwanji said.
On Wednesday, IndusInd Bank informed exchanges of multiple occurrence of irregularities at the bank. Internal and external reviews have led the bank to believe that it could be a suspected fraud instead of an accounting error, it said.
"...The board suspects the occurrence of fraud against the bank and the involvement therein of certain employees having a significant role in the accounting and financial reporting of the bank," it said in an exchange filing.
The accounting issues in the bank's derivatives portfolio, which were disclosed in March, were expected to have an impact of Rs 1,960 crore on its balance sheet for fiscal 2025. Also, the two more accounting discrepancies in interest income—discovered in the internal audits last week—worth Rs 674 crore and Rs 595 crore also reflected in the March quarter results.
According to the bank’s note of accounts, the investigation into derivatives portfolio indicated that the bank entered several internal trades between financial years 2015-16 and 2023-24. Accounting followed in these transactions was improper and was not in consonance with accounting guidelines.
It also said that there were unsubstantiated balances in other assets that do not have any impact on fiscal 2025 results. Further, the review found out incorrect interest and fee income in MFI portfolio to have Rs 422.56-crore financial impact.
This has come as the bank found misclassification of certain microfinance loans as standard and corrected classification resulted in additional NPA of Rs 1,885.19 crore.
The bank said that it has made 95% provisions against these loans and this resulted in an adverse impact of Rs 1,969.2 crore.
The investigations and reviews found involvement of senior officials and former managerial persons in overriding key internal controls.
The bank has also found concealment from board and statutory auditors and has reason to believe that suspected offences involving frauds may have been committed.
During the earnings call, Chairman Sunil Mehta said that the bank has taken several measures to understand the root cause of the identified irregularities and has taken corrective actions as well as fixed accountability.
