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IndusInd Bank. Photo: PTI.
New Delhi: The treasury department of IndusInd Bank seemingly delayed and obstructed the discovery of significant derivatives losses at the bank, show documents and draft minutes of the bank’s meetings held during a crucial October 2024 to March 2025 period. Meanwhile, the board and audit committees of the bank failed to provide proper oversight. As a result, it took banking regulator RBI’s intervention to finally expose the problem.
When the accounting was finally completed, it turned out that the bank’s net worth had been damaged by about 2.35% as of December 2024.
The disclosures have reportedly led to a whistleblower complaint about the bank’s functioning, submitted to the Prime Minister’s Office and other regulators, including the Reserve Bank of India and Serious Fraud Investigation Office (SFIO), earlier in June. The complaint alleges manipulation of financial records, evergreening of microfinance loans, suppression of audit findings and attempts by senior management and members of the bank’s board to conceal irregularities.
The news triggered losses for the bank on the stock market, which it pared somewhat after it clarified as follows: “All concerns raised in the news item have been duly examined in the past, and appropriate actions have been undertaken in accordance with the bank’s internal policies and applicable regulatory requirements,” it added.”
While the whistleblower complaint is recent, how IndusInd handled its review into derivatives losses previously exposed its weaknesses in governance and oversight mechanisms. It also raises questions about how effective board-level supervision is in detecting problems before they snowball into losses, especially at private-sector lenders.
How Pricewaterhouse Coopers entered the picture
The concealment at IndusInd came to light during a review of the bank’s treasury operations by Pricewaterhouse Coopers (PwC) in mid-to-late 2024. The review began after then Chief Financial Officer (CFO) Gobind Jain reportedly pushed for an independent audit, in particular about the valuation of the bank’s derivatives positions.
However, the review itself could not trigger disclosure. That happened only after Jain repeatedly refused to go along with what he reportedly considered problematic behaviour at the bank, which then triggered RBI to intervene. According to internal documents and meeting records at IndusInd, Pricewaterhouse Coopers (PwC), appointed to review its functioning, faced repeated delays in obtaining data, explanations and accounting policies from the treasury department. As a result, the review stretched for months beyond its original timeline.
Jain first raised concerns in mid-2024, soon after the Reserve Bank of India’s revised investment portfolio rules came into force on April 1, 2024. The bank apparently did not have the necessary hedge-accounting functions implemented, and the treasury department was making “manual internal swap cost entries” and creating receivables from ALM (Asset Liability Management).
Hedge accounting typically relates to banks reducing their exposure to, say, interest rate fluctuations. It is heavily regulated because of the potential for misuse. Manual internal swaps refers to transactions between bank desks (such as trading and treasury) that bypassed Calypso (or another banking enterprise-wide software system). While this does happen, the concern lies in the size of the transactions at IndusInd, which proved to be a significant setback to it.
As per recent reports, the net overstatement of profit and assets at the bank stood at Rs 1,817.58 crore, as per PwC’s confidential report on what happened at IndusInd. This was on account of a roughly Rs 2,000-crore derivatives accounting discrepancy that PwC reportedly discovered at the private lender in 2024.
It is primarily these two sets of transactions for which PwC wanted documentation and reports of IndusInd’s accounting policies, which were denied to it for several months.
PwC’s struggle to access information
Under pressure from Jain, who submitted at least four resignation letters between June and September 2024, the bank finally appointed an external auditor, PwC, to review its treasury accounting practices. PwC presented its proposal in July 2024 and began work the following month, but the engagement was formally approved only in October after renewed pressure from the CFO.
The firm reportedly halted work in August 2024 because it had not received a formal engagement letter from the bank. The engagement was eventually issued on October 22, 2024, after Jain again threatened to resign.
Draft minutes of the bank’s audit committee meeting held on October 24, 2024, show that members were informed about the PwC review. The minutes record discussions around the bank’s treasury accounting framework, implementation of hedge accounting under revised RBI norms, and the need for an external review of treasury processes and systems.
Also read: Inside IndusInd Bank’s Alleged Accounting Manipulation and Selective Accountability
Jain is recorded in these minutes as personally having briefed the audit committee about the RBI’s revised investment rules and treasury accounting issues. He is also specifically recorded as saying that “the bank wants to carry out a detailed review of the processes including accounting entries flow in Calypso.” (Calypso is a treasury and risk-management software platform used by banks and other financial institutions.)
In other words, the committee knew about the review as well as the issues that had prompted it. Here is what the draft minutes of the audit committee state:
… Mr Gobind Jain apprised the Committee that the RBI on September 12, 2023 had issued the revised Master Directions on Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023 (“Master Directions”) effective from April 01, 2024. He also informed that the bank’s Calypso system was due for renewal. There were various modules, including the hedge accounting module, which was not implemented in the Calypso. In light of the above, the bank wants to carry out a detailed review of the processes including accounting entries flow in Calypso. Also this will help in ensuring that revised investment recognition/classification and measurement is in accordance with revised RBI Master Directions.
…the bank has appointed PricewaterhouseCoopers (PwC) to conduct a detailed review of the bank’s accounting policies/systems/framework/ processes relating to treasury. It was also informed that in terms of the revised Master Directions, the bank would be required to make relevant disclosures from March 2025. Mr Arun Khurana informed the Committee that the hedge accounting framework (accounting of derivatives contracts) had come into effect from April 1, 2024 and it was prudent to review the bank’s hedge accounting framework from an external consultant.
Note than Arun Khurana, then executive director and deputy managing director at IndusInd, told the committee that it was “prudent” to have an external review of the bank’s hedge accounting framework.
Several months later, on January 18, 2025, IndusInd Bank informed stock exchanges that Jain had resigned as CFO. The bank appointed Arun Khurana as CFO and he was relinquished of his duties in roughly four months. Since Khurana had overseen treasury operations for several years, the decision was controversial given that the treasury department itself was in the eye of the disclosure and accounting storm.
The audit committee of the board should have been the first body aware of the treasury stonewalling the PwC review of the treasury. Yet it selected the one individual who had been looking after treasury since November 2011 as CFO.
RBI steps in
RBI became aware of potential issues in the bank’s derivatives portfolio following Jain’s exit interview. The regulator was reportedly concerned that PwC’s review, expected to be completed within weeks, had remained unresolved for several months. A process that began in August 2024, which the bank had said would be completed by September 2024, was still ongoing in January 2025 (when the bank announced Jain’s resignation to stock markets).
RBI subsequently directed the bank’s compliance wing to convene a meeting involving treasury, finance and PwC to understand the reasons for the delay.
The internal minutes of this critical meeting, specifically related to compliance, on March 3, 2025, reveal how the bank’s treasury, under the overall leadership of Khurana, the then deputy CEO, and Siddharth Bannerjee, then treasury head, were cooperating with the PwC review.
At this virtual meeting, PwC was represented by Parth Khandelwal and two other PwC members. The bank’s treasury back-office was represented by Sushant Sourav, Sandip Gupta, Himanshu Jain and Mayuresh Joshi, while the treasury front office was led by Siddharth Bannerjee and Rohan Jathanna. The finance department was represented by Santosh Kumar (then deputy CFO). The compliance department, which led the meeting, was represented by Sachin Patange.
Minutes of this meeting reveal that PwC was still seeking data, explanations and accounting policies relating to internal treasury transactions. In fact, this meeting was convened to address “pending data requirements and clarifications” and resolve gaps between departments.
The exact language used in the minutes was that the meeting was an attempt to “close any disconnect between teams”, implying that there was serious disagreement or gaps in information between treasury, finance, compliance and the external auditor.
What is more, PwC was not satisfied with the explanations provided by IndusInd’s treasury officials regarding internal trades and related accounting entries. The concrete issues it was dissatisfied about were internal trades, swap-cost entries, accounting treatment and outstanding balances. These are not run-of-the-mill concerns but serious ones related to the primary work of a bank.
Final disclosure
Just seven days after the compliance meeting, on March 10, the bank disclosed to stock exchanges that issues relating to its derivatives portfolio had damaged its net worth by about 2.35% as of December 2024. The timing of the disclosure – what could not be ascertained over months was revealed in just a week – raised questions about whether the key departments, especially treasury, were already aware of the scale of the losses while PwC’s review was ongoing. This would signal that the senior executives failed to disclose information rather than being unable to do so.
Further, if the audit committee of IndusInd knew about the PwC review on October 24, 2024, why did it take until March 2025 and RBI intervention for the matter to move forward?
Note that IndusInd Bank is also the subject of ongoing investigations, including for insider trading, for which it was recently raided by the Securities and Exchange Board of India. SFIO has also reportedly questioned it for delaying the 2024-related forensic audit report.
This article went live on June twenty-third, two thousand twenty six, at fifty-two minutes past seven in the evening.
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