IndusInd Bank CEO Resigns Amid Derivatives Accounting Scandal, Management Reshuffle Underway

Sumant Kathpalia exits immediately after taking moral responsibility for discrepancies that wiped out a quarter’s profit; RBI-backed overhaul expected.

April 29, New Delhi:
IndusInd Bank CEO Sumant Kathpalia has resigned with immediate effect, the private lender announced on Tuesday, in a major leadership shake-up following serious accounting lapses related to its derivatives portfolio. His resignation comes just a day after Deputy CEO Arun Khurana also stepped down, indicating deeper turmoil within the bank’s top ranks.

Sources familiar with the developments confirmed that a broader management overhaul is expected in the coming days as the bank navigates the fallout of the incident, which has already dented investor confidence and reduced the bank’s market value.

In March, IndusInd Bank disclosed accounting discrepancies in its derivatives book, with the impact estimated to be equivalent to an entire quarter’s profit. The lapses, attributed to aggressive profit-pursuit and inadequate internal controls, prompted the Reserve Bank of India (RBI) to advise the resignation of both Kathpalia and Khurana, according to earlier reports by Reuters.

Since the announcement of the discrepancies, IndusInd Bank shares have fallen by 7%.

“I undertake moral responsibility, given the various acts of commission/omission that have been brought to my notice,” Kathpalia said in his resignation letter, as stated in a stock exchange filing.

Kathpalia, a veteran banker with nearly three decades of experience, had been with IndusInd Bank for over 12 years and served as CEO since March 2020. His one-year extension had only recently been approved by the RBI when the irregularities came to light.

The $63-billion balance sheet lender has approached the RBI to establish an interim executive committee to manage the CEO’s responsibilities until a permanent replacement is appointed. All top-level appointments at Indian banks require approval from the RBI.

IndusInd Bank is backed by the UK-based Hinduja Group, which holds a 15.8% stake. However, the group has no board representation due to current regulatory constraints. A long-standing proposal by the Hinduja family to increase its stake to 26% remains pending with the central bank.

RBI: Depositors Will Be Protected

Sources familiar with the RBI’s stance emphasized that depositors’ funds remain safe.
“Depositors have no reason to worry… There will be no run on the bank,” one of the sources told Reuters.

Despite that assurance, the bank reported a slowdown in its deposit growth for the March quarter, particularly in term deposits and low-cost deposits.

Analysts warn that unless a strong leadership team is swiftly put in place, the bank’s core business could be impacted.
“Getting a best-fit leader is not done overnight. Until a strong leadership team with a solid reputation is formed, business development will slow down. This will impact growth, profitability, and efficiency,” said Vinit Bolinjkar, Head of Equity Research at Ventura Securities.

Further announcements on the bank’s leadership are expected within the next 24 hours. Both IndusInd Bank and the RBI have yet to comment publicly.