IndusInd crisis highlights possible audit related lapses
IndusInd Bank recently notified the stock exchanges that it had found accounting mistakes in its foreign exchange derivatives portfolio, which could reduce its earnings and net worth. It said an internal review of processes relating to Other Asset and Other Liability accounts of the derivative portfolio found that the bank had underestimated hedging costs related to forex transactions over a five- to seven-year period. The bank had used internal derivative trades against its foreign currency borrowings as well as deposits up to March 31, 2024. The review was in line with the Reserve Bank of India’s (RBI) circular on valuation and operation of the investment portfolio of commercial banks, including derivatives portfolio management.
The potential impact of the discrepancy is estimated to be 2.35% of the net worth of the bank as of December 2024, which comes to about Rs. 1500-1600 crore. The bank’s net worth was Rs. 65,102 crore as of December 31, 2024. With investors worried about corporate governance and future earnings clarity at the bank, shares of IndusInd Bank recorded their steepest decline ever.
IndusInd Bank has already appointed an external agency to independently review and validate the internal findings. A final report of the external agency is awaited, based on which the potential impact may need to be revised.
