IndusInd Ropes in EY to Conduct Another Audit
The IndusInd Bank board has appointed EY to carry out a second forensic audit, specifically to investigate a ₹600 crore discrepancy related to the accrual of interest income in its microfinance portfolio, said two people with direct knowledge of the matter. The issue was flagged during the ongoing statutory audit for the last financial year, prompting the auditors to issue an additional communication under Section 143(12) of the Companies Act 2013, said one of the persons cited.
The auditors then asked the bank to initiate a forensic audit into the `600 crore discrepancy.
EY, which has India's largest forensic practice, will conduct an investigation to see if there were any lapses and fix accountability. This is in addition to the forensic audit being conducted by Grant Thornton Bharat (GTB) to probe irregularities in the accounting of IndusInd's forex derivatives portfolio.
IndusInd Bank, EY and GTB didn't respond to queries.
'It is not an issue that spans multiple years. It seems to have occurred in the last financial year, possibly within the second and third quarter of the fiscal,' said one of the persons cited. 'But EY will investigate if there was any fraud committed.'
A source within the bank has cited time constraints as the reason for roping in EY, with the GTB-led primary investigation given until April end.
An EY affiliate, SR Batliboi & Co., had previously served as the bank's auditor (2018-2019) and EY consultants had helped the management review its derivatives portfolio in the March 2024 quarter.
IndusInd said in a stock market disclosure on April 15 that PwC, hired for an accounting review of the derivatives portfolio, had estimated potential losses from accounting anomalies at `1,979 crore. That was higher than initial estimates that had pegged the expected loss at `1,600 crore. But PwC's report had substantial disclaimers, said the source quoted above. The bank quantified the impact based on its June 2024 profit and loss. The adverse impact (on a post-tax basis) of 2.27% was based on IndusInd's net worth as of December 2024.
Auditors and accountants are questioning both the quality and timing of the bank's disclosures, particularly as two timelines are being used to judge impact on profit and net worth.
'In my opinion, presenting only net-of-tax figures is not the correct thing to do in this case,' said an accounting expert. 'Proper disclosure requires breaking down the gross amounts — by quarter and by year — so the actual impact is transparent. Otherwise, the financial understanding becomes skewed, especially for investors trying to assess the company's true performance.'
Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research Services, said the bank needs to make more information available.
'The best thing from a risk-management perspective would have been to disclose these discrepancies to the RBI and shareholders,' Subramanian said. 'The events in the last few days show that the board is not strong enough to quickly change the CEO and CRO in the bank as current risk-management practices seem to be inadequate.'
The separate forensic audit comes just days after the bank announced that deputy CEO Arun Khurana would step down from his post as chief financial officer (CFO), which he had taken on as an additional responsibility from January 21.
IndusInd Bank revealed in March that a foreign exchange hedging disparity stemming from a divergence in valuation methods led to a `1,500 crore loss, sparking a plunge in its stock price. The bank's treasury function was directly under Khurana's purview. The disclosure about the forex hedging mismatch came as the RBI allowed CEO Sumant Kathpalia only a one-year extension against the three years that had been sought.
The bank's chief accountant Santosh Kumar has been elevated as deputy CFO and special officer, finance and accounts, with effect from April 18. Kumar will head the finance and accounts functions of the bank until a full-time CFO is appointed, IndusInd said.
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