Scandal shockwave: How accounting gaps rocked IndusInd Bank in India

Dubai: What began as a routine internal audit at India's fifth-largest private sector lender quickly snowballed into one of the most serious financial controversies to hit the country’s banking sector in recent years.

A whistleblower complaint triggered a deeper probe, eventually exposing a series of financial misstatements and questionable accounting practices that have rattled investor confidence and caused a sharp drop in IndusInd Bank’s share price.

At the heart of the storm is an INR6.74 billion error—interest income that was incorrectly recorded in the bank’s microfinance portfolio over three quarters. This amount was later reversed, but not before raising major red flags internally and externally.

What followed was a far more damaging revelation: INR5.95 billion in unsubstantiated entries parked under “other assets” and later offset against “other liabilities.” These entries, discovered during a review by the bank’s internal audit department, hinted at more than just sloppy bookkeeping. Questions quickly arose around the roles of key employees, with the bank’s board now working to assign responsibility and strengthen oversight.

This was not an isolated issue. These findings are separate from previously disclosed concerns involving the bank’s derivatives portfolio—where mismanagement led to an estimated INR20 billion loss. The total financial impact of all disclosed discrepancies stood at INR19.6 billion as of March 31, 2025.

Just days after receiving an extension from the regulator, the bank’s Managing Director and CEO resigned, along with his deputy. Both leaders stepped down, citing moral responsibility for the lapses. In the wake of their exits, the bank was forced to form a temporary executive committee to oversee daily operations until a new CEO is appointed.

As part of damage control, the bank roped in global auditing firms to assist with a forensic review of its microfinance and derivatives portfolios. This came amid mounting allegations that some transactions may have involved conflicts of interest and even potential insider trading.

The crisis was first ignited by a whistleblower letter that landed on the desks of top bank officials and regulators just days before the derivatives losses were made public. The complaint not only flagged the INR6 billion microfinance income gap but also alleged an inappropriate relationship between a senior executive and a rehired employee—raising serious questions about ethics and internal controls.

Following this, deeper probes were launched into how operating expenses were recorded, with many of these entries not clearly tied to specific financial years. These weren't minor technical issues—they cut to the core of how income, liabilities, and risks were reported.

Markets were quick to respond. Within days, the bank’s stock tumbled by nearly 5%, continuing a downward trajectory that wiped out substantial investor wealth. The financial press buzzed with speculation, and regulatory authorities began stepping in.

The Bombay Stock Exchange sought clarification from the bank regarding the ongoing audits, while ratings agencies lowered their outlook citing weak corporate governance and oversight lapses. As more findings emerge, investors and analysts are watching closely to gauge the long-term impact on the bank’s credibility and valuation.

IndusInd Bank now finds itself at a critical crossroads. With top leadership gone, internal audits under the microscope, and regulatory eyes firmly locked in, the path ahead demands transparency, accountability, and swift reforms. Rebuilding stakeholder trust won’t happen overnight—but how the bank manages this crisis will determine whether it can emerge leaner, stronger, and more compliant.

In the interim, the temporary executive committee is holding the reins while external forensic audits dig deeper. For investors, the story is far from over. Many are bracing for more revelations as the full extent of the bank’s internal breakdown slowly comes to light.

The coming months will be crucial for IndusInd Bank—not just in plugging financial gaps, but in restoring the reputation of a brand that once symbolised private sector stability in India's banking landscape.