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Business Standard
13-05-2025
- Business
- Business Standard
Error or fraud: IndusInd Bank pressured to explain ₹2k cr derivative loss
Private sector lender IndusInd Bank is under mounting scrutiny over its accounting of foreign exchange derivative transactions. Statutory auditors have reportedly urged the bank to clarify whether the issue constitutes an accounting 'discrepancy', a technical 'error', or an outright 'fraud', according to a report by The Economic Times. The bank's auditors have been reportedly questioned if the losses linked to the derivatives misstatement, amounting to nearly ₹2,000 crore, fall under the definition of fraud. IndusInd sticks to 'discrepancies' So far, IndusInd Bank has consistently referred to the issue as a 'discrepancy' in its communications to stock exchanges and credit rating agencies. However, that language may now be insufficient, given the auditor's legal responsibilities and the impact on investor and regulatory confidence. The decision on terminology rests with the bank's board of directors, led by Chairman Sunil Mehta, and its audit committee, chaired by Bhavna Doshi. Both bodies are expected to deliberate on the findings ahead of the bank's annual accounts finalisation, which will reflect the full extent of losses from its forex derivative and microfinance businesses. What led to IndusInd Bank's ₹2,000 cr derivative loss? What if it was 'fraud'? Under the Companies Act, 2013, statutory auditors are required to report fraud involving amounts exceeding ₹1 crore to the government. For lower amounts, the issue must still be reported to the company's board or audit committee. With the scale of losses involved, a formal declaration of fraud would trigger regulatory disclosures and potentially further investigations. Should the bank acknowledge the issue as a fraud, it would likely need to submit formal documentation to the Ministry of Corporate Affairs. The response of employees implicated in the forensic report prepared by Grant Thornton may influence how the bank ultimately characterises the issue in its 2024–25 annual report and the auditor's report. This case could set an industry precedent, especially as Indian banks are required to report confirmed instances of fraud through the Fraud Monitoring Return (FMR) to the Reserve Bank of India (RBI). The RBI's definition of fraud includes financial deception, breaches of trust, irregular forex transactions, and falsification of records under penal provisions such as Section 477A. IndusInd Bank ₹2,000 crore derivative loss: What happened? IndusInd Bank, India's fifth-largest private lender with a balance sheet of $63 billion, disclosed on March 10 that its derivatives portfolio had been overvalued by approximately 2.35 per cent, resulting in an estimated derivative loss of ₹2,000 crore. A forensic review by Grant Thornton found that both executives had traded IndusInd shares while already aware of the accounting lapses, prior to the public disclosure, raising potential insider trading concerns, according to a report by Reuters. The bank is currently reviewing these findings. To stabilise operations, the Reserve Bank of India (RBI) approved the formation of an interim committee of executives to oversee the bank's day-to-day management. Moody's recently downgraded IndusInd Bank's standalone financial profile, citing internal control weaknesses and insufficient oversight by management.
India Today
12-05-2025
- Business
- India Today
IndusInd Bank faces tough questions from auditors over possible fraud: Report
IndusInd Bank is facing serious questions from its auditors about a possible case of financial wrongdoing linked to its accounting of foreign currency derivative are asking the bank to clearly say whether the issue is an error, a technical mismatch, or an actual fraud, reported The Economic far, IndusInd Bank has described the issue as a 'discrepancy'. This is the term it has used in its stock exchange notices and in talks with analysts and credit rating However, with the accounting problems now under review by auditors, the bank's management will need to be more clear and specific in its SEEK CLEAR ANSWERSAs per the report, the issue has reached a point where the bank's board of directors, led by chairman Sunil Mehta, and the audit committee, headed by Bhavna Doshi, must decide how to define the Indian law, if auditors believe that a fraud involving more than Rs 1 crore has taken place, they are required to report it to the government. If it is under Rs 1 crore, they must inform the bank's board or audit this case, the accounting issue may result in losses of nearly Rs 2,000 crore. If the bank officially calls it fraud, the auditors will have to report it to the Ministry of Corporate Affairs. The bank is expected to make its position clear soon, as its annual financial statements are due, and they will reflect the full impact of the losses related to foreign exchange derivatives and its microfinance CAUSED THE ISSUE?advertisementAccording to the report, the problem began from different accounting methods used for two connected transactions. On one side, the bank raised deposits in dollars and yen through internal deals between departments. On the other side, its treasury carried out forex derivative trades in the inter-bank market with other part of these transactions used accrual accounting, where profits or losses are recorded as they happen over time. The other part used mark-to-market accounting, where trades are valued at current market mismatch allowed the bank to delay recording some losses, while gains were reported immediately. Over time, this led to profits being overstated in earlier years. Now, these past mistakes are being corrected, resulting in a reported Rs 2,000 crore main question now is whether this is simply a mistake, or if it was done on purpose. A senior banker told The Economic Times that the bank may have avoided using the word 'fraud' either because internal procedures are still going on or to avoid raising Reserve Bank of India (RBI) defines fraud as including many types of financial wrongdoing, such as breach of trust, fake forex transactions, and even altering financial records. These are covered under Indian laws, such as Section 477A of the Indian Penal Code, which deals with falsifying told The Economic Times that IndusInd Bank may be waiting to go through responses from employees named in the forensic audit done by Grant Thornton. These responses could help the bank decide if the incident should be called fraud. Whatever the decision, it will be reflected in the annual report and the auditors' statement for the 2024–25 financial issue has drawn attention from rating agencies as well. Last week, Moody's downgraded IndusInd Bank's standalone financial rating. The agency pointed to weak internal controls and lack of proper oversight by the bank's management as reasons for the situation is also being closely watched by the banking sector. If IndusInd does report this as a fraud, it will have to file a 'fraud monitoring return' with the RBI, which could set an example for how such cases are handled in of now, both of IndusInd's auditors, MSKA & Associates (a part of BDO) and Chokshi & Chokshi, have not made any public Watch
Time of India
11-05-2025
- Business
- Time of India
Was it a 'fraud'? Auditors ask IndusInd Bank
'Error', or 'discrepancy', or ' fraud '? IndusInd Bank has come to a point where its management will have to unambiguously spell out the nature of its questionable derivative accounting . #Operation Sindoor India responds to Pak's ceasefire violation; All that happened India-Pakistan ceasefire reactions: Who said what Punjab's hopes for normalcy dimmed by fresh violations The statutory auditors of the private sector bank are believed to have asked the institution to state whether the discrepancy in the bank's derivative accounting which caused large losses, was a case of 'fraud', said banking sources. Compared to other listed entities, describing a mismatch or irregularity as 'fraud' may have regulatory implications for a bank. Till now, the IndusInd management has described the issues arising from its foreign currency derivative accounting as 'discrepancy'. It has been the bank's choice of word in notices to stock exchanges as well as in interactions with analysts and credit rating agencies. Live Events However, with the auditors having raised the issue-as auditors are required under the law-the bank's board of directors (under chairman Sunil Mehta, a veteran banker) and the audit committee (headed by Ms. Bhavna Doshi, a senior practitioner who has been an independent director in multiple boards) would have to take a stand. Sub-section 12 of Section 143 of the Companies Act, 2013 casts a duty on statutory auditors to report frauds committed by employees of the company in question. If the amount involved is more than ₹1 crore, an auditor is required to report the matter to the government, while if the matter is less than ₹1 crore, the auditor must inform the company's board or audit committee. IndusInd's accounting 'discrepancy' would result in losses of close to ₹2,000 crore. If the IndusInd management confirms it as 'fraud', the auditors would formally report it to the ministry of corporate affairs. The bank may express its views shortly as the annual accounts which would capture the full impact of losses linked to forex derivative and micro-finance business would have to be finalised soon. "Whether you call it creative accounting, discrepancy, some kind of malpractice or irregularity, at the end of the day one would expect the transactions to be categorised under some regulatory definition. The bank probably refrained from saying fraud either because formalities are not over or to downplay the issue," said a senior banker tracking the case. While a discrepancy or error may be attributed to technical or clerical reasons, a fraud indicates an intent to deceive. IndusInd auditors-MSKA & Associates, an arm of BDO, and Chokshi & Chokshi-did not comment on the matter while a bank spokesperson did not respond when asked whether the bank board would report the accounting discrepancy as 'fraud'. Borrowing from the erstwhile Indian penal code, the Reserve Bank of India's definition of fraud covers different forms of financial deception, including breach of trust and irregular foreign exchange transactions. And, altering books and electronic records are included in the list of offences under Section 477A of the penal code dealing with falsification of accounts. The bank's accounting mismatch is understood to have stemmed from differing accounting treatments to internal deals (between the desk that raises dollar and Yen deposits and the treasury), and the external forex derivative transaction in the inter-bank market between IndusInd treasury and another bank. With one leg following accrual accounting and the other leg doing a mark-to-market accounting, valuation losses were deferred while gains were recorded. The roll back of past years' overstated profits (due to postponement of losses) resulted in the ₹2,000 cr loss number. The bank may weigh the responses of employees named in the forensic report (by Grant Thornton) to decide on the 'fraud' tag, said sources. "This would determine what is finally stated in the annual report and the auditor's report for 2024-25. It could also set a precedent for the industry as banks report cases of frauds by filing 'fraud monitoring return' (FMR) with RBI," said another banker. Last week, rating agency Moody's downgraded the bank's standalone financial profile due to weaknesses in internal controls and inadequate management oversight.
