IndusInd Bank issue is of internal compliance lapse; not indicative of systemic risk to the sector: Govt official

The bank shares slipped on March 28th, snapping a two-day winning streak ahead of the external auditor PwC’s report on bank’s accounting discrepancies.

Bank frauds or shocks have a way of eroding confidence in the sector that is usually considered a benchmark of confidence, stability and growth. One bank fraud can rattle the faith and trust of investors.

When IndusInd Bank, the fifth largest private sector bank, notified the Mumbai and National Stock Exchanges on March 10TH of ‘discrepancy’ relating to other assets and other liability accounts of the derivatives portfolio, flagging a $175 million hole in its balance sheet, the next day the bank’s shares crashed 27.9 percent. The debacle was perhaps a painful reminder of other recent banking shocks, the IL &FS collapse in 2018 and Yes Bank’s crisis.

The discrepancies, according to an analyst conference, occurred over a 5 to 7-year period, and an internal review commenced in September 2024. Does the IndusInd crisis cast a shadow on the banking sector as a whole? The government is of the view that the bank’s crisis is restricted to IndusInd alone.

A government official told Moneycontrol that the IndusInd issue is a stand-alone and is not indicative of the risks in the banking system. “ Indus Ind is an internal compliance lapse issue, not a corporate governance issue,” the official noted on whether the IndusInd lapse will trigger stricter corporate governance norms for the banking sector.

“An overall assessment of the banking sector has been done ..we don’t see this is as a larger issue,” said the official.
Meanwhile, Grant Thornton, a global tax advisory and auditing firm has been appointed to conduct a forensic review into the accounting lapses.

The Reserve Bank of India has said that IndusInd Bank remained “well-capitalised”. “ The Reserve Bank would like to state that the bank is well capitalised and the financial position of the bank remains satisfactory.”

The Securities and Exchange Board of India is investigating potential insider trading violations at IndusInd Bank.

The bank shares slipped on March 28th, snapping a two-day winning streak ahead of the external auditor PwC’s report on bank’s accounting discrepancies.