No systemic impact arising out of IndusInd Bank issue, says RBI governor

IndusInd's former CEO Sumant Kathpalia

Reserve Bank of India (RBI) Governor Sanjay Malhotra on June 6 sought to calm concerns over IndusInd Bank following the resignation of its MD & CEO, stating that the issue will settle down soon and poses no systemic risk to the banking sector.

“The CEO has taken moral responsibility and stepped down, that should be good enough,” Malhotra said during the post-Monetary Policy Committee (MPC) press briefing.

“There is no systemic impact arising out of the issue,” he added.

Following the RBI's comments, IndusInd Bank shares rallied over 4 percent on June 6.

The resignation of IndusInd Bank’s former MD and CEO Sumant Kathpalia comes against the backdrop of multiple regulatory concerns, including lapses in loan provisioning and asset classification, particularly within the bank’s microfinance and vehicle finance portfolios.

Regulators and market observers had flagged possible evergreening of loans and delays in recognising non-performing assets (NPAs) over recent quarters.

A recent inspection by the RBI reportedly uncovered deficiencies in the bank’s asset quality recognition and provisioning practices, further intensifying scrutiny.

These findings increased pressure on the leadership, eventually leading to the CEO’s resignation. In response, the bank has launched internal reviews and strengthened its audit and risk management frameworks.

Adding to the turmoil, the Securities and Exchange Board of India (SEBI) issued an interim order on May 28, barring Kathpalia, ex-Deputy CEO Arun Khurana, and three other senior executives from trading in securities.

SEBI’s probe found that the executives had allegedly engaged in insider trading by offloading shares while in possession of unpublished price-sensitive information (UPSI) regarding major accounting irregularities in the bank’s derivatives portfolio.

IndusInd had disclosed a Rs 1,529 crore impact from these discrepancies in March 2025. However, a forensic investigation by Grant Thornton revealed that the executives were aware of these issues as early as December 2023 but delayed public disclosure. SEBI has impounded around Rs 19.8 crore from the individuals involved as part of its ongoing investigation.

While the RBI did not specify the details, it acknowledged that the bank has since taken adequate steps to improve its accounting and internal governance practices.

“The central bank will not be failing in its duty if action is needed,” Malhotra said.