In a massive disclosure that has sent shockwaves through India’s financial sector, a confidential review conducted by PricewaterhouseCoopers (PwC) has exposed severe accounting irregularities and structural control collapses within IndusInd Bank’s treasury operations.
The 71-page investigative report, commissioned by the bank’s board, reveals that back-office staff used unauthorized manual accounting entries to artificially mask mounting trading losses. These entries fabricated a massive receivable pool of ₹2,201.76 crore, directly resulting in a net overstatement of the bank’s profits and assets by ₹1,817.58 crore.
The forensic scope of the audit examined more than one million transactions across seven distinct asset classes spanning from April 1, 2023, to June 30, 2024.
The Modus Operandi: How the Losses Were Masked
At the core of the governance collapse was a fundamental, structural disconnect between two vital segments of IndusInd’s treasury infrastructure:
- The Asset Liability Management (ALM) Desk: Responsible for balancing overall balance-sheet and liquidity risks.
- The Trading Desk: Tasked with entering into external market transactions and hedges.
PwC discovered there was absolutely no automated linkage or digital reconciliation between internal trades logged by the ALM Desk and external hedges executed by the Trading Desk. Taking advantage of this systemic blind spot, the treasury back-office continuously pushed manual adjustments to conceal mounting trading losses, writing them off as artificial “receivables” owed by the ALM desk.
“The bank cannot clearly establish whether the on-balance sheet assets and liabilities… are hedged externally at the bank level,” the PwC report noted. “Lapses in maker-checker review and an overall lack of control over the manual entry process can result in inaccurate entries being posted.”
Breakdown of Key Accounting Irregularities
Beyond the primary ₹2,201 crore artificial asset buffer, the PwC review flagged multiple severe deviations from standard accounting conventions:
- Hidden Forex Forward Losses: Foreign exchange forward contracts entered into with external parties were not marked-to-market at designated reporting dates. Instead, they were recognized only upon final settlement. This allowed the bank to omit unrealized losses of ₹121.46 crore (as of March 2024) and ₹161.43 crore (as of June 2024) from its public financial reporting.
- Cross-Currency Swap Anomalies: Errors in accounting for cross-currency swaps resulted in a misstatement of ₹31.88 crore.
- Swap-Cost Amortization Lapses: Inappropriate calculations in swap-cost structures forced an accounting discrepancy of ₹15.93 crore.
Regulatory Backlash and Corporate Shake-up
The derivative fiasco has triggered a severe multi-agency pile-up. While PwC’s mandate was strictly restricted to a technical accounting review, a parallel forensic probe conducted by Grant Thornton (GT) went deeper into individual accountability.
The forensic findings have pinned joint responsibility on 25 senior employees, including high-ranking treasury heads, Deputy CEO Arun Khurana, and former MD & CEO Sumant Kathpalia.
The Broader Damage Map
The fallout has severely hit the bank’s operational metrics, leading to a complex regulatory cleanup:
| Discrepancy Component | Financial Impact / Status |
| Total Accumulated Treasury Receivables | ₹2,201.76 crore (Inflated asset column) |
| Net Overstatement of Profits & Assets | ₹1,817.58 crore |
| MFI Segment Misstatements | ₹674 crore (Incorrectly booked micro-finance income) |
| Full Discrepancy Capital Hit (Derivatives + MFI) | ~₹3,400+ crore |
| Post-Tax Impact on Net Worth | 2.27% reduction (As of December 2024) |
| IndusInd Q4 FY25 Final Bottomline | ₹2,329 crore Net Loss (After adjustments) |
What Lies Ahead for IndusInd Bank?
The Reserve Bank of India (RBI) has intervened directly, asserting that while the private lender remains well-capitalized on a standalone basis, immediate structural fixes are non-negotiable. The RBI penalized CEO Sumant Kathpalia by slashing his recommended three-year executive extension down to just a solitary year.
The bank has already completely discontinued the practice of internal derivative trading and reversed the incorrect entries in its audited financial statements. However, with the Serious Fraud Investigation Office (SFIO) summoning past statutory auditors (including MSKA & Associates and MP Chitale & Co) and a whistleblower complaint reaching the Prime Minister’s Office, IndusInd Bank faces an uphill battle to restore investor trust and repair its core profitability estimates for FY27.