The RBI has declared that the bank's financial status is stable despite falling stock prices

IndusInd Bank reported derivative losses of Rs 2,100 crore on March 10, which resulted in a 23% drop in share value.

The bank made an effort to shift the blame to a change in the Reserve Bank of India's rules pertaining to the derivatives portfolio. However, the derivative book loss was ignored for a long time, which led to a buildup of losses.

The departure of the bank's Chief Financial Officer (CFO), Gobind Jain, and the actions of CEO Sumant Kathpalia and Deputy CEO Arun Khurana to sell shares valued at Rs 157 crore over the past two years have been brought to light in the midst of the turmoil.

The stock has recovered from its March 11 low of Rs 655 to its mid-March 19 high of Rs 692. Over the previous six months, IndusInd Bank's share price has decreased by roughly 53%.

What happened on the 10th of March?

An internal review of IndusInd Bank's derivatives portfolio revealed that the bank's net worth might be negatively impacted by 2.35%, which would cost them nearly Rs 2,100 crore.

IndusInd Bank ceased internal trading on April 1, 2024, in compliance with the RBI's September 2023 investment directives, which prohibit banks from hedging or internal trading.

However, during an internal review, the bank found some discrepancies. The accounting of losses on forex derivatives and swap transactions completed prior to April 2024 (during the preceding five to seven years) to hedge forex deposits and debt was not recorded through NII (net interest income), even though the corresponding treasury gains were documented in the profit and loss (P&L) statement.

Derivatives are used by the Treasury Department to convert foreign currency borrowings and deposits into rupees.

Was the bank's disclosure motivated by the RBI?

The RBI was ultimately in charge of the disclosure, according to banking sources, and it's probable that IndusInd Bank was aware of the problem's scope long before they claimed to have discovered it.

Because it appears that these transactions were not fully unwound on a daily basis, there have been worries regarding the bank's handling of internal trades and accrued interest differences. As a result, the loss accumulated over time rather than being gradually corrected. This probably goes against accounting standards.

Given that the finance and treasury departments fully document all foreign exchange transactions and positions on a central system, it is astounding that a significant gap in the balance sheet was ignored for such a long time. Despite the fact that this information is readily available on the central system, it seems that the bank was never aware that it was in danger.

What has the RBI said about the bank's health?

The RBI assured depositors last week that the bank's financial status remains stable, so they shouldn't worry."The speculative reports no longer require a response from depositors. The Reserve Bank said in a statement that the bank's finances are stable and being closely watched.

The bank's deposits reached Rs 4,09,438 crore as of December 2024, an 11% year-over-year increase.

The RBI claims that the bank maintains a satisfactory financial situation and has sufficient capital.The bank's liquidity coverage ratio (LCR), as of March 9, 2025, was 113%, below the statutory threshold of 100%.