Mumbai Police EOW finds no fund siphoning at IndusInd Bank, seeks RBI’s final word: Report

Mumbai Police EOW finds no fund siphoning in IndusInd Bank accounting case, seeks RBI clarification before closing probe.

The Mumbai Police Economic Offences Wing (EOW) has not found evidence of fund diversion or siphoning in its probe into alleged accounting irregularities at IndusInd Bank, effectively ruling out criminality by former top executives, The Economic Times reported, citing people familiar with the matter.

Sources told ET that the preliminary enquiry (PE) has found no basis to register a first information report (FIR) so far. However, before formally closing the case, the agency has sought clarifications from the Reserve Bank of India (RBI) on certain aspects of the matter, including whether similar issues were flagged earlier and what follow-up action, if any, was taken.

“So far, the investigation has revealed no instance of fund siphoning. Regarding the accounting of Rs 1,950 crore, there appear to have been omissions but not wilful ones,” a senior police official told ET.

The official added that a separate forensic finding of a Rs 255-crore mismatch was also reviewed, but no evidence emerged of deliberate manipulation. “Hence, there is no ground to register a criminal case,” the official said.

The EOW has also written to the RBI seeking clarity on hedging practices and accounting norms related to the mismatches. The RBI, however, did not respond to ET’s queries. Moneycontrol could not independently verify the news report.

A preliminary enquiry is converted into an FIR only if evidence points to a cognizable offence. Otherwise, the case is closed for lack of proof. “Once the RBI’s reply is received, the bank will be informed of the outcome,” an official told ET.

The mismatches date back to 2015. Investigators found that while some former key managerial personnel (KMPs) were aware of the discrepancies, there was no indication that they profited from them or engaged in insider trading.

Insider trading claims found unsubstantiated

“The complainant had also alleged possible insider trading, but this aspect falls under Sebi’s purview,” another official told ET. “The police found that the shares sold by the executives were part of their ESOPs, and no irregular positions were taken.”

In March, the Hinduja Group-promoted lender disclosed a Rs 1,979-crore lapse in its derivatives portfolio, along with additional misstatements, Rs 674 crore booked as microfinance income, Rs 595 crore as unsubstantiated balances, and Rs 172.6 crore misclassified as fee income.

The bank said its internal review showed a potential 2.35% hit to net worth as of December 2024 but maintained that its profitability and capital buffers were strong enough to absorb the one-time adjustment.

Following the RBI’s directive for a deeper probe, PwC was asked to review derivative transactions between April 2023 and June 2024, while Grant Thornton conducted a forensic audit covering FY2016 to FY2024.

Grant Thornton’s report, submitted recently, named around 25 individuals linked to the lapses, according to people aware of the findings. The alleged irregularities stemmed from unhedged yen contracts, where internal trades between IndusInd’s dollar and yen desks were booked on an accrual basis while external trades were marked to market, a mismatch that inflated profits in earlier years and deferred losses worth nearly Rs 2,000 crore.

The EOW began its inquiry in August after IndusInd itself filed a complaint flagging suspected accounting lapses dating back to 2015. Those questioned included former CEO Sumant Kathpalia, ex-CFO Govind Jain, and former deputy CEO Arun Khurana, along with more than a dozen employees from the finance and accounts divisions who were suspended pending review.

The police are expected to close the probe once the RBI’s clarifications are received, marking the end of a months-long investigation that has so far found no evidence of wilful wrongdoing.