Prime Highlights
- IndusInd Bank’s external audit discovers ₹1,979 crore discrepancies in its derivative book, decreasing its net worth by 2.27%.
- The bank will modify its FY 2024–25 accounts and improve internal controls.
Key Facts
- Discrepancies occur because of forex derivative transactions of the last 5-7 years.
- Unrecognised losses affected net interest income, while treasury gains were recognised in the profit and loss account.
- Reserve Bank of India has been notified, and there is a forensic audit in progress.
Key Background
IndusInd Bank, India’s largest private sector bank, recently disclosed significant discrepancies in its derivative book after conducting an external audit by PricewaterhouseCoopers (PwC). The audit indicated that the bank’s net worth had been affected by ₹1,979 crore, down by nearly 2.27% as of December 2024. The discrepancies arose on account of forex derivative trades entered into by the bank in the last 5–7 years, mainly undertaken for hedging of foreign currency borrowings and deposits.
The source of these disparities is in the incorrect accounting treatment of such derivative transactions. While profit and loss due to the transactions were correctly taken into consideration, related losses were not captured in net interest income properly, resulting in overstatement of performance. This deficiency questioned the bank’s sufficient internal controls as well as its risk management models.
Following the findings of the audit, IndusInd Bank announced publicly its intentions to restate its FY 2024–25 financial accounts to accurately state the accounting treatment. The bank also reiterated that it remains intent on enhancing its internal controls in order to avert such variances in the future. Also, Reserve Bank of India (RBI) has been informed, and forensic audit is initiated to investigate the matter in great detail.
A previous internal audit had estimated the 2.35% negative effect on the bank’s net worth at approximately ₹2,100 crore. The slightly lower figure in the independent audit is therefore a reflection of a more realistic assessment of the malpractices. IndusInd Bank asserts its profitability and capital adequacy to be robust enough to absorb the one-time blow despite the effect, reassuring investors and stakeholders of the bank’s financial health.
This matter highlights acutely the compelling need for aggressive internal audits and compliance with strict accounting rules at banks to provide clarity and uphold investor confidence.
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