“RBI Has Lost Confidence”: IndusInd Bank CEO, Deputy Asked to Step Down Over $175M Accounting Lapse

RBI pushes for external replacements after derivatives overvaluation; IndusInd denies claims, insists leadership transition not imminent.

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Mumbai, March 22 – The Reserve Bank of India (RBI) has reportedly asked IndusInd Bank’s CEO Sumant Kathpalia and Deputy CEO Arun Khurana to step down, following significant accounting discrepancies in the bank’s derivatives portfolio, four sources with direct knowledge told Reuters.

“The RBI has lost confidence in the bank’s top executives and wants an orderly leadership transition,” said a source familiar with the discussions.

The move comes in the wake of IndusInd Bank’s March 10 disclosure that its derivatives portfolio was overvalued by 2.35%—approximately $175 million (₹1,450 crore)—after non-compliant internal trades were flagged. The issue, which came to light in September 2024, violated RBI rules introduced in April 2024.

While the RBI is yet to issue a formal directive, insiders suggest the central bank is actively advising that both Kathpalia and Khurana be replaced with external candidates. Although the bank’s board recommends leadership appointments, the RBI’s final nod is mandatory, and its informal cues carry considerable weight in governance matters.

IndusInd Bank, however, has pushed back strongly.

“The information circulating is entirely inaccurate and does not reflect the true situation,” the bank said in a statement, calling the reports “factually incorrect.”

The bank, India’s fifth-largest private lender with assets of over ₹5.4 trillion, has appointed external investigators to assess the discrepancies. Khurana, in addition to his deputy CEO duties, heads the global markets division, which includes the derivatives desk now under scrutiny.

The RBI has reassured depositors that the bank remains well-capitalised, amid fears that sudden leadership changes could trigger depositor panic or further investor selloffs. IndusInd shares have already plunged over 30% this month.

Ratings agency Moody’s placed the bank’s rating on review for downgrade on March 17, citing:

“The discrepancy in the accounting shows weakness in the bank’s risk management, compliance and reporting… persistent failures in these areas could erode IndusInd’s reputation and strain its funding and liquidity.”

Emails sent to the RBI, Kathpalia, and Khurana remained unanswered at the time of reporting.

According to one source, this is not seen as a sector-wide issue, but rather a case of internal oversight failure. The RBI’s intervention, while discreet, underscores its broader focus on governance and compliance lapses in private banks.