In a major development, IndusInd Bank’s Managing Director and CEO, Sumant Kathpalia, has stepped down from his position with immediate effect, the bank announced on April 29, 2025. His resignation came into force at the close of business hours on the same day.
Kathpalia, who had been leading the bank since March 2020, cited moral responsibility as the reason for his sudden exit. “I undertake moral responsibility, given the various acts of commission/omission that have been brought to my notice,” he stated in his resignation letter.
RBI’s Limited Extension and Leadership Transition
The resignation follows the Reserve Bank of India’s (RBI) decision to extend Kathpalia’s tenure by only one year, despite the bank’s request for a three-year renewal. Following his exit, IndusInd Bank has approached the RBI seeking approval to form an interim committee of executives to handle the duties of the CEO until a new appointment is finalized.
Fallout from Derivatives Accounting Lapses
Kathpalia’s departure is closely tied to a controversy surrounding accounting discrepancies in IndusInd Bank’s derivatives portfolio. Earlier this year, the bank revealed that certain lapses could negatively impact its net worth by 2.35% as of December 2024. The news triggered a sharp market reaction, causing IndusInd Bank’s shares to plummet by 26% in a single day, leading to significant losses for investors.
However, external auditor PwC later revised the estimated impact to Rs 1,979 crore, translating to a 2.27% hit to the bank’s net worth. In response to market concerns, the RBI reassured the public, stating that IndusInd Bank remains well-capitalized and that its financial position is satisfactory.
Forensic Review and Ongoing Investigation
To address the issue thoroughly, IndusInd Bank engaged Grant Thornton to conduct a forensic audit. The report, submitted on April 26, 2025, identified the incorrect accounting of internal derivative trades, especially during early terminations, as the primary cause of the discrepancies. These trades were reportedly recorded as notional profits, inflating the bank’s financials.
Board’s Next Steps
In the wake of these revelations, the bank’s board is now focused on realigning senior management responsibilities and fixing accountability. Steps are being taken to restore stakeholder confidence and prevent similar issues in the future.
While the departure of Sumant Kathpalia marks a turning point for IndusInd Bank, regulatory authorities continue to emphasize the overall stability and resilience of India’s banking system. RBI Governor Sanjay Malhotra recently described the accounting issues at IndusInd and restrictions on New India Cooperative Bank as isolated episodes, not systemic failures.
