IndusInd Bank stares at a reputation crisis as it reveals more accounting horrors

The bank, which reported its highest ever quarterly loss and higher bad loans, now suspects employee fraud in the financial irregularities. It needs to reintroduce best practices, and revive investor and customer confidence, say analysts

By Salil Panchal Forbes India Staff

Published: May 22, 2025 10:36:18 AM IST

Full Bio

This is a reputation crisis for IndusInd Bank and the financial performance is one of the poorest in the past two decades. Image: Anushree Fadnavis / Reuters

The bad unknowns surrounding accounting discrepancies for private lender IndusInd Bank continue to pour in. The bank, which spoke to analysts late on Wednesday, disclosed not just a quarterly loss—its first and highest ever in nearly 20 years—lower income and weak asset quality, but also fresh accounting irregularities, which bank employees are responsible for and should be identified as “fraud”.

Sunil Mehta, chairman of IndusInd Bank, told analysts that the internal audit department identified that over the first three quarters ending December 2024, there was incorrect recording of Rs172.58 crore as fee income in the microfinance segment. There was also under-provisioning and non-recognition of NPAs (non-performing assets) aggregating to Rs1,885 crore.

“Based on a review of all these matters and reports received by the Board, it suspects the occurrence of fraud against the bank and the involvement therein of certain employees, having a significant role in the accounting and financial reporting of the bank,” Mehta told analysts.

IndusInd Bank swung into a net loss of Rs2,328.9 crore for the quarter-ended March 2025, against a profit of Rs2,349.1 crore a year earlier. Consolidated net interest income for the bank fell by 43.3 percent to Rs3,048.3 crore against Rs5,386.5 crore for the corresponding period, a year earlier.

Bad loans for the bank have also surged, with net NPAs at 0.95 percent for the quarter, against 0.68 percent for the December-ended quarter.

Also read: We're choosing our own battles: Axis Bank's Amitabh Chaudhry

Negative Impact

Prior to the disclosure of the Q4FY25 earnings, analysts who Forbes India had spoken with said the quarterly earnings for the bank will be weak, but the worst might be over. But now it appears that is not the case.

“This is a reputation crisis for IndusInd Bank and the financial performance is one of the poorest in the past two decades. This financial performance will have a negative impact on the bank in terms of corporate governance,” Kranthi Bathini, director of equity strategy at WealthMills Securities, tells Forbes India.

“The bank management needs to fix the lacunas in the system. It’s a question of introducing best practices at the earliest… we need to wait and watch how the bank will come out of this and improve corporate governance in the coming quarters,” Bathini adds.

Mehta told analysts that the bank will be reporting to the regulatory authorities to fix accountability for these lapses. “The bank’s financials now reflect full and fair representation of all the concerns brought to its attention. We want to start FY26 on a clean slate,” Mehta said. He said IndusInd Bank has a capital adequacy ratio of 16.24 percent and provisions of 70 percent.

The problems for IndusInd Bank had commenced earlier, after it said that incorrect accounting has created a nearly Rs1,959 crore deficit in the bank’s finances, according to a Grant Thornton investigation.

The release of the Thornton report saw a spate of resignations. IndusInd Bank’s CEO Sumant Kathpalia resigned on April 29, taking ‘moral responsibility’ for the lapses, a day after the bank’s deputy CEO Arun Khurana put in his papers.

IndusInd Bank awaits the approval of a new leader, which will have to be approved by the Reserve Bank of India (RBI). The bank management now says it will submit the potential leadership candidates to the RBI for approval, prior to the June 30 deadline.

Nitin Aggarwal, head-BFSI (institutional equities) at Motilal Oswal Securities, had earlier in May indicated that IndusInd Bank would see a deceleration in its loan book with a hit in margins.

IndusInd is counted as India’s fifth-largest private lender by size. In many segments, it has a decent franchise, particularly vehicle financing (25 percent of the loan book), which is a high-yielding business. Its asset mix is also relatively controlled and though the MFI segment is undergoing pressure, that is a system-wide stress.

For the bank, it will not just be about identifying the people who carried out these accounting malpractices and bringing them to book. It will be about reintroducing best practices and reviving investor and customer confidence in the bank, which is likely to take several more quarters.