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Time of India
24-05-2025
- Business
- Time of India
Governance gaps in IndusInd Bank
Dr Rao is currently teaching risk management in the institute of Insurance and Risk Management (IIRM). A career banker with Bank of Baroda, he held the position of General Manager - Strategic Planning, Later was Associate Professor with National Institute of Bank Management (NIBM) and was Director, National Institute of Banking Studies and Corporate Management (NIBSCOM). He writes for financial dailies on Banking and Finance and his work can be viewed in the public academic accomplishments include Ph.d in commerce from Banaras Hindu University (BHU), MBA ( Finance), LLB. He runs a Youtube channel - Bank on Me - Knowledge series He likes to share his perspectives with next generation potential leaders of the banking industry. His book on "Transformation of Public Sector Banks in India' was published in september 2019. His most interesting work is in blog. LESS ... MORE The full-year performance of IndusInd Bank (IIB) for FY25 was adversely impacted due to accounting discrepancies detected during the fiscal. It absorbed the carryover losses accumulated due to accounting lapses in (i) the derivative portfolio and (ii) the microfinance business. As a result, the net profit for FY25 went down to Rs 2575 crores as against a net profit of Rs 8977 crores posted in FY24, reflecting a steep fall in earnings due to discrepancies vouched even by the external experts. According to the notes to accounts disclosed in the balance sheet of Q4 of FY25, the total hit to financials on account of overstated/wrongful accounting of earnings absorbed during FY25 is stated to be Rs. 4975. The IBB Board, while releasing the financial results of FY25, lamented that it suspects a fraud involving certain employees, who played a significant role in the bank's accounting and financial reporting. It has directed the bank to take all necessary actions to be taken under applicable laws, including reporting the matter to regulatory authorities and investigative agencies. The collateral damage due to these discrepancies has been huge, eroding the stakeholder value. What happened in IndusInd Bank: Adding to accounting discrepancies in the derivative portfolio of IndusInd Bank (IIB) adversely impacted the income of Rs. 1530 crores reported on March 10. It potentially reduced the net worth of the bank to the tune of 2.35 percent. A specially appointed external agency quantified the negative impact of the discrepancies in the derivative portfolio as of June 30, 2024, at Rs 1930 crores. During an internal audit, yet another accounting lapse was detected in its microfinance business, where a cumulative amount of Rs. 674 crores was incorrectly recorded as interest over three quarters of FY25. As a result of the risk incidents, its stock prices decreased from Rs. 936 on March 7, 2025, to Rs. 685 on March 12, recording a 27 percent slump. While its stock price was recovering from the earlier shock, the second bout of discrepancy in the microfinance business brought down its stock price to Rs. 736 at the close of May 16, 2025, with a 6 percent slump. IIB is facing renewed scrutiny after revealing a Rs 674 crore accounting discrepancy in its microfinance (MFI) portfolio. The successive lapses detected in the accounting system marred the reputation of the bank and raised questions about the effectiveness of systemic internal control and the efficacy of the risk-based internal audit (RBIA)system. Earlier, the RBI, in a press release on March 15, had to reassure the depositors of IIB that its financial health is stable, dispelling the growing concern. Governance gaps: Clear-cut updated guidance of the RBI was updated and issued in 2021 on corporate governance in banks. It was strategically focused on the appointment of a chairperson. conduct of meetings of the board; composition of important committees of the board; age, tenure, and remuneration of directors; and appointment of the whole-time directors. However, despite such clarity in guidelines and thrust on rigor in corporate governance, due to a lack of spirit in its implementation, gaps in governance manifested in different forms in different institutions. The sequence of risk events in IIB is the latest in the spate of weaknesses in governance coming to surface, indicating slackness in governance, causing collateral damage to the reputation and standing of the 5th largest private bank. The three lines of defense in risk management have not been embedded with the kind of rigor needed to ring-fence the bank. Monitoring Governance: While the implementation of well-entrenched governance practices is the collective responsibility of the board, sub-committees of the board, and key management people, establishing the culture of risk management and raising the bar of compliance is an essential duty of everyone in the organization in integrating operational efficiency. In a closely integrated operating ecosystem, gaps in compliance cannot remain isolated. Every activity passes through many eyes, and non-compliance can persist only if there is indifference towards compliance, not at a single point but at various spots. Hence, ensuring the accuracy of financial reports and maintaining their integrity, risk, and compliance becomes a collective task, particularly when most of it is system-generated. RBIA is another key internal systemic control tool supplementing the task of the concurrent auditors in identifying compliance gaps and initiating course corrections. Neither the accounting lapses in the derivative portfolio nor the gaps in the accounting system in MFI were detected by these key systemic controls and brought to the attention of the Board. IIB is thus exposed to massive operational risks with collateral damage stretching to the stakeholders. In the entire saga of accounting lapses of IIB, the failure points are many, and the inability to fix them points towards a lackluster control on different dimensions of governance. Even SEBI is slated to go into the probability of any insider trading due to the wild fluctuation of the share prices of IIB before and after the disclosure of the discrepancies. Aftermath of risk event: Whenever major risk events surface, there are resignations of senior functionaries – an immediate escape route to shun the stress of the event. In IIB, the spate of resignations began with the CFO resigning in January, well before March 10 when disclosure was made. It's began to hold dual positions and also resigned later. Its MD & CEO resigned on moral grounds after Grant Thornton confirmed the discrepancy. When a major part of top management resigns, the organization is demotivated and its reputation is adversely impacted. Its jitters are seen all over. In the given series of developments in the banking sector, a constructive debate is necessary among mandarins of the financial sector to (i) find out ways to identify more granular checkpoints to test the quality of the governance process to proactively fix weaknesses, if any. (ii) allow key people to resign or not, either preceding a major risk event or after it comes to light. Rather, in times of crisis, the key people should work together and collaborate well to restore normalcy. They should accept responsibility for the risk event. It will provide better confidence to the stakeholders that the lapses are succinctly addressed by those responsible for them. Resignations of key people may not be the panacea against risk events. The gaps in governance should be captured with a granular checklist/scorecard resonating the quality of operations. Any deviations in the standards of governance must be addressed proactively. Facebook Twitter Linkedin Email Disclaimer Views expressed above are the author's own.
The Hindu
22-05-2025
- Business
- The Hindu
Brokerages downgrade IndusInd after disclosures of fresh fraud
Brokerages including HDFC, Nuvama and IIFL securities advised their clients to reduce or sell IndusInd stocks in their portfolio after the bank revealed further lapses and instances of fraud in its fourth quarter review. The bank reported its worst quarter, posting a net loss of more than ₹2,300 crore as it accounted for all the discrepancies that accumulated over fiscal 2025, according to the bank's financial statements. 'IIB has been guilty of betraying stakeholder trust multiple times over the past few years with repeated episodes of misgovernance. The bank was severely impacted during the IL&FS crises (2018) and the pandemic (2020). Now, having admitted to multiple accounting lapses over the past couple of months, we believe that IIB is faced with a severe loss of credibility, which will need years and a complete overhaul to rebuild,' said HDFC Securities in its analyst report further adding that IndusInd was among the worst in terms of compliance and it was 'operating akin to an NBFC,' Despite this, the bank's stock closed 1.82% up at 785.10 on the BSE on Thursday, as the bank said that it was taking action against the employees involved in the fraud and in expectation of a new leadership. Further, the Chairperson and promoter of IndusInd International Holdings of Ashok P Hinduja in a statement expressed his 'unequivocal trust in the Chairman & Board of Directors of the Bank for their appropriate, swift actions in order to address discrepancies and attendant areas of concern.' He further added that the regulator was dealing with this issue in an orderly manner. In a separate event in New Delhi, Securities and Exchange Board of India (SEBI) Chief Tuhin Kanta Pandey said that 'if there are any egregious violations by anyone in its capacity, SEBI is looking into them.'
The Star
27-04-2025
- Business
- The Star
Global forum for thought leaders coming to Medini
ONE of the most anticipated international business forums is coming to Johor in June. Over 500 business and government leaders from across Asia are set to convene in Medini, Iskandar Puteri. Iskandar Investment Bhd (IIB) president and chief executive officer Datuk Idzham Mohd Hashim said Japan's Nikkei Forum, a series of global events organised by Nikkei Inc, would explore critical themes like digital transformation, sustainable development and emerging technologies. 'The event will help shape the future of the region by creating opportunities for businesses and policymakers to connect, grow and drive economic progress. 'The forum is also a golden opportunity to present Johor's dynamic investment landscape to the world and position the state as a leading meetings, incentives, conferences and exhibitions (MICE) hub for investment and business development in Asian markets,' he said in an interview. Idzham added that in the past, the forum had attracted delegates from about 40 countries with the objective of fostering collaborations and creating strategic partnerships. Last December, IIB, Nikkei Inc and Nikkei Business Publications signed a memorandum of understanding to jointly host the Nikkei Forum in Medini. The Nikkei Forum was founded in 1999 as a platform for thought leadership in Asia. Idzham added that the partnership reflected a shared vision to promote meaningful exchanges across Asia. It would also build on strong historical ties between Japan and Malaysia in sectors such as manufacturing, automotive and electronics. 'As the strategic developer of Medini, IIB plays a critical role in driving regional growth and innovation. 'Medini, located some 30km from Singapore, is rapidly developing into a technology focused urban hub with projects such as Tech Medini, which emphasises artificial intelligence, blockchain and robotics,' he added. Idzham said the location and support for cross-border economic activity made it an ideal destination for businesses looking to expand in South-East Asia. The event would further highlight the region's growing role as an innovation and investment hub, added Idzham. — By YEE XIANG YUN
