IndusInd Bank’s MD and CEO Resigns, Takes “Moral Responsibility” for Derivatives Lapses

A ₹19.6-billion lapse in derivatives accounting at IndusInd Bank claimed a second high-profile exit today, as Managing Director and CEO Sumant Kathpalia resigned, taking “moral responsibility.” On Monday, Arun Khurana had stepped down as whole-time director and deputy CEO, also citing the derivatives issue as the reason.

“I undertake moral responsibility, given the various acts of commission/omission that have been brought to my notice,” Kathpalia said in his resignation letter, referring to the lapse in derivatives accounting first disclosed in early March.

In March, the bank had announced accounting discrepancies related to foreign exchange derivatives, with an estimated adverse impact of about 2.35% of its net worth as of December 2024. A back-of-the-envelope calculation had suggested a hit of around ₹15.3 billion.

On April 27, IndusInd Bank said an external investigation had revised the figure to ₹19.6 billion, which will be adjusted against the January–March bottom line.

The report concluded that the primary cause of the discrepancy was the incorrect accounting of internal derivative trades, particularly in relation to early terminations, which led to the booking of notional profits. The findings also assessed the roles and responsibilities of key employees involved in these practices.

In response, the bank's board has initiated measures to hold individuals accountable and is taking steps to realign senior management roles.

The earlier disclosure had triggered a rush by depositors to withdraw funds. The situation stabilised only after the Reserve Bank of India stepped in to reassure the public about the bank’s financial health.

Earlier in March, the RBI had granted Kathpalia only a one-year extension, instead of the three years sought by the lender’s board.
At the time, Kathpalia had said the issue—of which the RBI was aware—may have influenced the decision to limit his extension to one year.

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