Mumbai: IndusInd Bank announced on Tuesday that its Managing Director and CEO Sumant Kathpalia has resigned from his post in connections with the derivatives accounting lapse that has eroded the private sector bank's net worth.
The development comes a day after Deputy CEO Arun Khurana quit after accounting discrepancies were unearthed in the bank's derivatives portfolio by an independent audit.
The findings of the investigation carried out by a professional firm, appointed by the bank’s board, were submitted on April 26. The audit report confirmed that incorrect accounting practices led to an adverse cumulative impact of Rs 1,959.98 crore on the bank's profit and loss account as of March 31, 2025.
"I wish to submit my resignation from the services of the Bank in relation to the ongoing Derivatives discussion. I undertake moral responsibility, given the various acts of commission/ omission that have been brought to my notice. I would request that my resignation be taken on record at close of working hours today," Kathpalia stated in his resignation letter.
The issue first came to light on March 10, when IndusInd Bank disclosed that mark-to-market (MTM) losses in its derivatives book could impact up to 2.35 per cent of its net worth as of December 2024 due to discrepancies in its derivative accounts found during an internal review. The loss in net worth worked out to around Rs 1,600 crore.
The RBI issued a direction to the bank to appoint global audit firm Grant Thornton Bharat to conduct a forensic investigation to ensure an accurate assessment of the losses.
According to the Grant Thornton investigation, incorrect accounting of internal derivative trades by the bank, particularly in the cases of early termination, led to notional profits, which resulted in accounting discrepancies.
The bank also sought approval from India's central bank to set up a committee of executives who will take charge of the CEO's responsibilities.
Earlier, the Reserve Bank of India (RBI) had decided in March to grant only a one-year extension to his tenure, despite the bank's request for a three-year term. The RBI decision to cut short his tenure at the time was made due to concerns over governance and financial reporting issues of IndusInd Bank.
IndusInd Bank had said the net worth impact emerged from internal derivative trades, which were not in compliance with rules enforced by the RBI from April 2024.
The RBI had changed the rules that govern the investment portfolio of commercial banks in September 2023.
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