Auditors Call for Forensic Investigation into IndusInd Bank's Derivatives Portfolio
Moneylife Digital Team 17 March 2025
In a significant development regarding the ongoing IndusInd Bank crisis, the joint auditors of the Hinduja group-promoted bank have formally requested a forensic audit of its troubled derivatives portfolio, according to an Economic Times report. MP Chitale & Co and MSKA & Associates, the bank's current auditors, have written to the board requesting this thorough investigation, prompting the board to initiate the process of selecting a top firm to conduct the forensic examination.
 
This request comes amid the Bank's continuing struggle with the fallout from its March 10 disclosure of significant discrepancies in its derivatives portfolio – an announcement that triggered the largest single-day stock price drop in the bank's history, plummeting 27% and contributing to a staggering 50% market value erosion over the past six months. The Bank has estimated these accounting gaps could adversely impact its net worth by 2.35% as of December 2024, with approximately Rs1,600 crore of the hit expected to reflect in the March quarter earnings.
 
The crisis reportedly originated from internal trades involving low-liquidity instruments, such as 3-6 year yen and 8-10 year dollar borrowings. Rather than directly hedging foreign currency borrowings and deposits with external counterparties, the bank utilized its internal desk for the hedging process. While external trades were properly marked-to-market, the internal trades were valued using swap valuations, creating a discrepancy that went undetected as the two legs of trades, typically, converge at maturity.
 
Following the discovery of these issues, PwC was appointed as an external agency to conduct an accounting review of the portfolio, though sources indicate this report has yet to be tabled. The management has acknowledged these discrepancies have persisted for five to seven years, only being identified between September and October last year after a review prompted by an RBI circular issued in September 2023.
 
In what may be related to these developments, the Bank's chief financial officer (CFO) Gobind Jain resigned in January, just months after the discovery of the discrepancy. Meanwhile, the Institute of Chartered Accountants of India (ICAI) is expected to review the Bank's books after taking suo-motu cognisance of the accounting issues.
 
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