Why the ongoing investigation at IndusInd Bank is not beyond reproach

IndusInd Bank is apparently trying to ascertain the extent of losses caused by a wrong accounting treatment of derivative instruments.

The last time when a bank chief stepped down to ensure that her board of directors conduct a fair investigation on a loan-related issue was in 2018. Case in point is the then celebrity CEO banker Chanda Kochchar and ICICI Bank.

In June 2018, when hell broke loose over the Essar loans issue, she went on an indefinite leave and four months later, she was forced to step down as the CEO of the bank to ensure that investigation around the Essar loans allegation could be done in a just manner. While the exposure of total banking system was approximately Rs 42,000 crore with State Bank of India bearing much of the loans, ICICI Bank’s exposure was only Rs 6,000 crore. For a bank with a balance sheet size of about Rs 8 lakh crore, this was barely significant. But yet, she was asked to leave the bank.

Cut to 2025, where IndusInd Bank is apparently trying to ascertain the extent of losses caused by a wrong accounting treatment of derivative instruments worth Rs 1,500 – 2,100 crore based on market estimates. Now, it needs to be asked as to why the bank’s senior management is continuing to hold on to its position. They should have either gone on a long, unpaid leave, or offered to quit by now.

Now, why is that critical?

Firstly, the bank claims the accounting lapses are a culmination of at least seven years of mistakes. If that be the case, it seems a little hard to accept that the senior management was unaware of the lapse.

To be sure, Arun Khurana who was elevated as CFO of the bank in mid-January last year, is primarily the head of global market trades. Treasuries is his fiefdom. He still holds both these titles, apart from being the bank’s deputy CEO as well. A month has passed since these allegations came to fore and one is yet to hear of the official concerned in the treasuries department who should take the blame for this.

The CEO and his role is questionable too. This column delved into the question of why the buck should stop with the CEO Sumant Kathpalia a few weeks back (https://www.moneycontrol.com/news/opinion/vault-matters-the-buck-stops-with-the-ceo-in-the-indusind-fiasco-12978594.html).

Will Grant Thorton’s forensic audit report stand the test of impartiality? This is another reason why the management should have offered to step down. There are already reports, including at Moneycontrol, that the earlier audit conducted by PwC was faced with multiple interferences by the bank’s management. While the senior management may not directly get involved in the provision of data to GT, their influence on their teams can be substantial enough to disrupt the process and hence the question of whether the audit was conducted in a fair and objective manner could arise in future.

That the Reserve Bank of India is also okay with the management continuing to be on board despite the magnitude of malpractice is a bit difficult to accept. With Rs 4 lakh crore of deposits involved, one can only hope that GT’s report will reveal the real truth.