IndusInd Bank to hold senior management accountable as audit confirms incorrect accounting
IndusInd Bank announced that it will take necessary steps to hold the personnel responsible for lapses and shift their roles after an independent audit confirmed incorrect accounting.
'The Board is taking necessary steps to fix accountability of the persons responsible for these lapses and re-align roles and responsibilities of senior management,' the bank said in an exchange filing.
The lender will take a hit of ₹1,959.98 crore on profit as estimated by the report, the lender said in the filing. The bank already discontinued internal derivative trades beginning April 1, 2024. 'The report identifies incorrect accounting of internal derivative trades, especially in case of early termination, which resulted in recording of notional profits, as the principal root cause for accounting discrepancy,' IndusInd informed the stock exchanges.
The bank's board must propose a new Chief Executive Officer by late 2025, who would likely be an external candidate with expertise in governance and risk management, to align with RBI's fit-and-proper criteria, said Sonam Chandwani, managing partner at KS Legal & Associates. Additionally, the bank may also face pressure from the board to replace audit committee members to comply with SEBI regulations, she added.
'The Hinduja Group, as promoters, may leverage their increased 26% stake to influence these changes, but any delays could trigger RBI intervention under Section 36AB of the Banking Regulation Act, appointing additional directors to enforce compliance,' Ms. Chandwani added. SEBI may also scrutinise for inadequate reporting to shareholders, which has potential of penalties and stakeholder law suits.
The RBI may investigate lapses and in case that confirms 'wilful misconduct or gross negligence,' the bank may have to face fines, or restrictions on treasury operations, she noted. 'The RBI's history of stringent enforcement suggests swift action to safeguard financial stability,' she added.
Preventive action like real time transaction monitoring independent risk audits and stricter board accountability, will be necessary, she said. 'The bank's aggressive risk-taking culture, prioritising short-term gains, requires a fundamental overhaul,' Ms. Chandwani added.
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