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Informist, Thursday, May 29, 2025

 

By Anshul Choudhary

 

MUMBAI – A closer look at IndusInd Bank's former managing director and chief executive officer Sumant Kathpalia's comments in the aftermath of the discrepancies in derivative trade and the revelations in the interim order by the Securities and Exchange Board of India show that Kathpalia lied about details of the case on at least two occasions. It seems the bank's board also hid information about employing an external agency back in January 2024 to look into the bank's books to ascertain the extent of this accounting discrepancy.

 

IndusInd Bank, in an exchange filing on Mar. 10, said it had found discrepancies in the accounting of its derivative portfolio and expected this discrepancy would create an impact of about 2.35% of its net worth as on Dec. 31. In subsequent interactions with media and analysts, Kathpalia maintained that he got to know about the size of the discrepancy only in September and October of 2024.

 

"I was not aware, neither was the bank aware of the size of the problem", Kathpalia had told CNBC-TV18 in an interview on Mar. 11, a day after the bank disclosed the discrepancy to exchanges. It turns out this was a blatant lie, considering that SEBI found email exchanges between the management which showed Kathpalia definitely knew about the probable "huge impact" of the discrepancy in the accounting of IndusInd Bank's derivative portfolio as early as December 2023--more than a year before the bank finally revealed it to the exchanges.

 

"We need to do the reporting. There seems to be a huge impact...", Kathpalia wrote in an email to the then chief financial officer of the bank in December 2023, according to an email quoted in SEBI's order. This clearly shows he knew not just that there was a problem but also the extent of the problem. 

 

That Kathpalia's comment that he was not aware of the "size of the problem" was also a lie is borne out by internal mails quoted in the order. Email exchanges between Kathpalia and the bank's then-chief financial officer show the CFO had made an internal estimate of the impact back in November 2023 itself and Kathpalia was made aware about the same in December 2023. The management initially calculated the impact would be INR 13.6 billion and this information was relayed to Kathpalia and several other employees between Dec 6-Dec 8, 2023, the SEBI order said.

 

Kathpalia in an e-mail to his then CFO in December 2023 said: "It seems we need to go to market early next year. This is very very serious." They revealed the discrepancies after over one year of this e-mail. SEBI's findings show not just Kathpalia, but the senior management also knew about the urgency of the matter. 

 

The company's then management, in their interactions with the media and analysts in March 2025 also, hid the information about having asked audit and advisory firm KPMG to conduct an external review of the discrepancies in January 2024. In their conference call with analysts on Mar. 10 this year, Kathpalia said they hired an external agency after he was made aware of the possible impact of the discrepancy in September and October of 2024, almost 9-10 months after the bank had already asked KPMG for a report.

 

Emails accessed by SEBI show the bank's management had hired KPMG in January 2024, which submitted its preliminary findings in February 2024 and had projected the financial impact of the accounting discrepancy at INR 20.93 billion till December 2023. This information was not mentioned in the March 2025 filing to the exchanges and it was also not revealed in the management's subsequent interactions with media and analysts.

 

What is bewildering is the SEBI order shows KPMG was hired in consultation with the board, and the board too failed to make this key development public. "It is further seen that they accordingly appointed KPMG vide Board Note dated January 29, 2024 to review the discrepancies...," the SEBI order said. The bank's Chairman Sunil Mehta, in the earnings conference call in May, claimed that the board was kept in the dark about the issue till March this year. If that is true, why did the bank hire KPMG in January 2024 and to do what? The question to which we don't know the answer, at least yet, is whether the board was aware that KPMG had projected the financial impact of the accounting discrepancy at INR 20.93 billion. 

 

There is also a disparity between claims made by Sunil Mehta in May and what Kathpalia had said in March. Kathpalia had claimed in March that he had disclosed the discrepancy to the board soon after he got to know about the impact. "When the number got disclosed to us, we went to the board and disclosed it," Kathpalia had said in the interview with CNBC-TV18 on Mar. 11. However, Mehta had said in May the board was unaware about the issue till March this year. "The Board, was not informed of the discrepancies, including at the time of approval of the financial results for the relevant accounting periods," Mehta had said in May.

 

It also appears the bank's then CFO had proposed to share the discrepancy details with the RBI as early as in December 2023, but it is still not clear whether it had shared the initial findings with the central bank. While the SEBI order is silent on whether this information was finally sent to the RBI, Kathpalia's comment in March this year provides some clue.

 

In the March 2025 conference call, Kathpalia had said the management gave a preliminary update to RBI "last week", which would mean they told this to RBI in late February--more than a year after the management first discussed it internally. Media reports said the discrepancies were revealed to exchanges after the RBI intervened twice in November 2024 and February 2025 as IndusInd Bank failed to comply with RBI's "Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023", which came into effect in April 2024.

 

Kathpalia and his deputy Arun Khurana have since resigned from the bank. The Reserve Bank of India in April approved the bank's request to constitute a committee of executives to perform the duties of MD and CEO. For now, the bank is in discussion to appoint new leadership with Mehta mentioning in the May concall that they are in advanced stage of the selection process.  End

 

Edited by Vandana Hingorani

 

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