IndusInd Bank Q4 Results: First Comments From Chairman Amid Fraud

Summary

The board and management of the bank have addressed several issues stemming from recent discrepancies in financial reporting and governance. Following a rigorous internal and external review, they acknowledged errors such as misclassified microfinance loans and incorrect income recognition, which led to the absorption of significant financial impacts. The bank is committed to improving its internal controls, reinforcing ethical standards, and ensuring accountability for staff involved in the lapses. With leadership changes underway, the bank is focused on achieving long-term sustainability and compliance, aiming to establish a culture of transparency and robust governance.

Takeaways

• 😀 The board and management are addressing significant irregularities identified since March 2025, including accounting issues, governance lapses, and internal control failures.
• 😀 The board acknowledges the pain caused by these issues but is committed to resolving them and restoring trust in the organization.
• 😀 A comprehensive approach has been taken to assess and address the irregularities, including internal reviews and external expert assistance.
• 😀 The bank has discontinued internal accounting trades for derivatives since April 2024, and further improvements are being implemented to prevent future lapses.
• 😀 A review of the microfinance portfolio revealed incorrect interest and fee income recording, resulting in an underprovisioning of ₹1,885 crores, which has been fully accounted for.
• 😀 The bank has identified unsubstantiated balances in other asset and liability accounts, leading to a misclassification of ₹760 crores as interest income instead of other income.
• 😀 The board suspects the occurrence of fraud against the bank involving certain employees and has initiated steps to address the issue under applicable laws.
• 😀 Despite these challenges, the bank's balance sheet remains strong, with a capital adequacy ratio of 16.24%, provision coverage ratio of 70%, and excess liquidity of ₹39,600 crores.
• 😀 The CEO and Deputy CEO resigned in April 2025, and the board is in the final stages of selecting a new CEO, with plans to submit the proposal to the RBI by June 30, 2025.
• 😀 The board is committed to reinforcing a culture of governance, ethics, and compliance across the organization to ensure long-term sustainability and success.

Q & A

What was the primary reason for the board chair addressing the analysts and investors directly?

The board chair addressed the analysts and investors directly due to recent events and irregularities within the bank. The board felt it was important to provide transparency and engage personally with stakeholders to reassure them about the steps being taken to resolve the issues.

What are some of the main issues identified by the board in the recent developments?

The main issues identified include irregularities in accounting, lapses in governance, violations of internal controls, and inadequate disclosure and reporting mechanisms to the board. These issues were not disclosed during the approval of financial results, and the board only became aware of them in March 2025.

What steps has the board taken to address the identified issues?

The board has conducted internal and external reviews, sought the help of reputed external firms, and worked closely with management to address all identified issues. They have also taken steps to improve internal controls, strengthen governance, and ensure transparency moving forward.

What financial impact did the irregularities have on the bank?

The financial impact of the irregularities has been fully accounted for in the audited financial statements for the financial year 2425. This includes the correction of incorrect accounting in the microfinance portfolio and the identification of other misclassifications and unsubstantiated balances.

How is the bank addressing staff accountability for the issues identified?

The board has emphasized the importance of staff accountability. Actions are being taken to fix accountability according to internal codes of conduct and relevant laws, with particular attention to the individuals involved in the accounting and financial reporting lapses.

What role did the regulators play during this process?

The board expressed gratitude to the regulators, especially the RBI, for their support and guidance in navigating these challenging times. The board has also kept the regulators informed and engaged throughout the process.

How has the bank’s capital adequacy and liquidity been affected by these events?

Despite the challenges, the bank’s capital adequacy ratio remains strong at 16.24%, with a provision coverage ratio of 70% and an average liquidity coverage ratio of 118%. The bank has also maintained excess liquidity of 39,600 crores, ensuring financial stability.

What is the status of the leadership transition at the bank?

Following the resignation of the CEO and deputy CEO after the external review findings, the board is in the process of selecting a new CEO. Proposals for the new CEO are to be submitted to the RBI by June 30, 2025. In the interim, a committee of executives is overseeing the bank’s operations.

What are the bank’s future plans to prevent similar issues from occurring again?

The bank plans to reinforce its governance culture, implement stronger internal controls, and institutionalize ethical best practices. The board is also focused on ensuring long-term sustainability and transparency while preventing the recurrence of such incidents.

What does the board’s ‘one bank, one bank’ vision mean for the future of the organization?

The ‘one bank, one bank’ vision focuses on breaking silos within the organization and creating a unified approach to governance and execution. This will help ensure that issues like the recent irregularities do not occur again and that the bank can continue to achieve its growth objectives in a sustainable manner.