MC EXCLUSIVE Treasury frauds at IndusInd Bank may date back to 2017 or earlier, emails reveal

IndusInd Bank

Email trails accessed by Moneycontrol indicate that IndusInd Bank’s controversial accounting practices on treasury-related aspects, particularly those involving foreign exchange (forex) contracts, that came into the public domain in March 2025, may have been known internally since 2017 or even earlier. Emails dating from that year suggest that potential problems were known and discussed among senior officials.

These emails discuss the possible impact of the accounting practices on the bank’s bottomline and its net worth many years before the matter came into the public domain.

According to an email dated June 29, 2017, Arun Kharana, who was then the country head – Global Market Group said: “I don't think we should make it to complicated as I will definitely hedge irrespective of treatment etc. In fact in the past also we never sought approval of alco for hedging exposures. Since this is a longer tenor I thought it was prudent. Maybe we should just circulate to alco members for concurrence. I have already discussed this with MD".

ALCO in banking parlance refers to the bank’s asset and liability committee which plays a critical part in overseeing key risks such as interest-rate and liquidity related aspects.

The emails  pertained to a facility which was for a  tenor of 8 years and the employee sensitized Khurana and others that with new accounting norms likely to kick in from next fiscal, the bank should be aware of the hedging-related treatment required for the loan exposure given it’s somewhat longer duration.

Khurana’s email was in response to an email by an employee which flagged the impact of changes in accounting norms. “A para on Hedge Accounting treatment covering Pre-IND-AS and Post-IND-AS, in consultation with CFO department, may be included in the note”. IND-AS refers to Indian accounting standards.

As per the norms which prevailed in FY18, banks had some leeway in timing  hedging for foreign exchange contracts. The new norms  proposed by the Reserve Bank of India however makes it clear that forex contracts require hedging from the day of entering such contracts.

To be sure, adoption of IND-AS for banks has been in the works for several years and has been talked about since FY17. NBFCs adopted IND-AS in FY19, whereas banks are set to adopt the new accounting standards from next fiscal onwards. However, since the guidelines, as issued by the ICAI were more or less known, large banks maintain pro-forma financials as per IND-AS.

Than was the case with IndusInd Bank as well, and the same is highlighted in this mail correspondences.

These email exchanges assume importance because 4 – 5 key former employees of the bank, including the former CEO, Deputy CEO and CFO are being investigated by the Mumbai Police Economic Offences Wing (EOW). On May 25, when IndusInd Bank published its financials for March FY25, the statutory auditors of the bank had qualified the developments pertaining to the treasury activities as fraud. This was reported by the bank to necessary investigating agencies including the Reserve Bank of India.

Inflated networth position

Further,  an email by the bank’s former CEO, S V Zaregaonkar which dates to early-2021, analyses the impact on net worth because of the accounting practices.

“Opening Equity (for FY22) will be impacted by around Rs 1,908 crore primarily on account of Additional ECL provisions of Rs 2,068 crore, Effective interest rate Rs 862 crore, ALM swaps MTM of 700 crore and LC/BG upfronting of Rs 200 crore to be mitigated by gains on Investment book of Rs 1393 crore. The net-worth however will be higher because we will consider AT1 bonds as part of capital,” as per the  email from Zaregaonkat to xx.

As mentioned earlier, this email reiterates that the bank had an estimation of how IND-AS would impact its financials:

- ECL or estimated credit losses: a factor that would come into play with IND-AS adoption)

- ALM swaps MTM: Asset - Liability Management swaps which is a key tool to manage and hedge the mismatch between assets and liabilities, particularly concerning interest rate risk and liquidity risk

- LC/BG upfronting: providing additional risk letter of credit and bank guarantees

- Classifying additional tier-1 capital as common equity which is not permitted now

The email also mentions that from Q1 FY19 the bank has been submitting pro forma Ind AS Financial Statements on a quarterly basis to the Reserve Bank of India. The mail further said that: “Vide an email dated August 08, 2021, RBI reduced the frequency of Ind AS proforma financial statement submission from quarterly to half yearly, accordingly we are now ready with the same for the six months ended September 30, 2021, considering April 1, 2021 as the transition date”.

An email sent to the bank seeking clarification on the above-mentioned internal communication between the senior management and related employees remained unanswered till publishing the article.

The contents of the abovementioned emails appear to contradict statements made by the earlier management of the bank on March 10 this year, where it was indicated that certain changes in accounting practices applicable from FY25 for treasury, particularly in foreign exchange have a bearing on the bank’s networth. The call presided over by Sumant Kathpalia, former CEO and Arun Khurana, former deputy CEO and CFO, spelt out that that the networth of the bank may not be presenting the true picture and could be inflated by approximately Rs 2,100 crore.

HR’s call with select employees

Meanwhile, in a related though different incident, around last April this year, the bank’s chief human resources office, Zubin Mody may have nudged a few employees to state things ‘as is’ in a meeting with Grant Thornton. As per a telephone recording accessed by Moneycontrol, Mody was heard telling an employee “we have to save the bank”. Below is the transcript of the phone call.

Zubin Mody: I am trying to put your career back on track. You will have to help me.

Employee: Yes sir

Mody: If you are called by Grant Thornton, they will call you for a meeting…

Employee: Okay sir…

Mody: You have to state everything that you know honestly and what you stated to Sumant yesterday

Employee: Yeah sir

Mody: Especially about your discussions on front office treasury on how difficult they were, it was not correct and their push back.

Employee: Yeah…

Mody: Speak openly, we have to save the bank. The report will be out on Friday. Nobody is going to be named….trust me on that.

Employee: Yeah, I trust you sir

Mody: You are in the bank because of me. All the best.

Employee: Thank you sir

To put things in context, Grant Thornton conducted an extensive audit on the bank which was not limited to the treasury related aspects. The aim of the audit was to uncover if there were further problems . Grant Thornton’s reports is believed to have been placed before IndusInd Bank’s board around the last week of April, following which Kathpalia and Khurana left the bank.

It is not clear yet as to why Mody reached out to the employees just days ahead of Grant Thornton finalizing its report. It is also not clear whether Mody had  authorization from the bank’s board or its senior leadership to reach out to employees on this issue.

An email sent to the bank seeking clarification on these aspects remained unanswered till publishing the article. Messages sent to Mody remained unanswered.