By- Tannu Puri
Indian private lender IndusInd Bank announced on Monday that it expects its net worth to decrease by 2.35% as of December 2024 due to discrepancies found in its derivative accounts during an internal review.
The Mumbai-based bank clarified that the net worth impact arose from internal derivative trades that did not comply with rules set by the Reserve Bank of India (RBI), which came into effect in April 2024. These discrepancies are unrelated to client accounts, according to Deputy CEO Arun Khurana, who spoke on a conference call without providing specifics on the nature of the inconsistencies.
“Effective April 1, we can confirm that there will be no internal trades in our books; we have not entered into any internal trades,” Khurana said during the call. “The internal trades that existed before April 1 have been unwound, and all relevant mark-to-market valuations have been taken into account.”
In September 2023, the RBI overhauled the rules governing the investment portfolios of commercial banks. The discrepancies in IndusInd’s derivatives book were identified between September and October, as noted by the bank’s CEO, Sumant Kathpalia, during the call. To ensure transparency, IndusInd has appointed an external agency to independently review and validate the findings of the internal investigation. The bank also reassured investors that its profitability and capital adequacy remain strong enough to absorb this “one-time impact.”
Kathpalia mentioned that the 2.35% impact on the bank’s net worth is an internal estimate, and the final outcome from the external review may not differ significantly. The bank has informed the RBI of the issue, which could have influenced the regulator’s decision to grant a shorter extension for Kathpalia’s CEO tenure. Last week, the RBI approved his reappointment as CEO for one year, which is shorter than the board’s original approval and contrasts with the typical three-year extension granted by the central bank.
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