IndusInd faces audit heat as ₹2,000 crore foreign exchange losses come to light

The issue reportedly arises from inconsistent accounting methods applied to two connected transactions—foreign currency deposits in US dollars and yen raised internally, and simultaneous forex derivative trades executed by the treasury in the interbank market

IndusInd Bank is under heightened scrutiny following auditors’ concerns over potential financial misreporting tied to foreign exchange derivative transactions. The bank is now being pressed to clarify whether the issue is a technical misstatement, a procedural lapse, or a possible case of fraud — a classification that could carry serious regulatory and reputational consequences.

The discrepancy, which has come to light during the finalisation of the bank’s FY2024–25 financial statements, has been described by the bank as a “discrepancy” in its official stock exchange disclosures and communication with analysts. However, with the magnitude of losses pegged at around ₹2,000 crore, the term is now being questioned by auditors, who are seeking greater clarity on its origin and intent.

Pressure mounts on bank’s board and audit panel

According to reports quoting sources, the matter is currently being evaluated by the bank’s audit committee and board of directors, led by Chairperson Sunil Mehta and Audit Committee Chair Bhavna Doshi. Under existing regulations, if auditors suspect fraud involving sums exceeding ₹1 crore, they are obligated to report the matter directly to the Ministry of Corporate Affairs. Any failure to do so could place audit firms under regulatory fire as well.

The auditors—MSKA & Associates (part of BDO India) and Chokshi & Chokshi—are reportedly awaiting the bank’s formal assessment before finalising their opinion on the financial statements. The bank’s final classification will be closely monitored by regulators, investors, and the broader banking community.

Accounting discrepancy leads to losses

The issue reportedly stems from inconsistent accounting methods applied to two interlinked sets of transactions. The bank is said to have mobilised foreign currency deposits—primarily in U.S. dollars and Japanese yen—through internal mechanisms, while its treasury simultaneously engaged in forex derivative trades in the interbank market.

While one side of the transaction followed accrual accounting, the other used a mark-to-market approach, leading to an asymmetric recognition of gains and losses. Gains were reported immediately, while losses were deferred, artificially enhancing profits in earlier periods. With accounting corrections now being implemented, previously unreported losses are surfacing.

Forensic audit review underway

A forensic audit by Grant Thornton is currently underway, and individuals associated with the transactions have been asked to respond to audit findings. These responses are likely to influence the bank’s final position on whether the episode was the result of negligence, error, or deliberate intent.

Legal experts note that if the incident is eventually classified as fraud, it could fall under Section 477A of the Indian Penal Code, which addresses the falsification of accounts. This would require the bank to report the incident to the Reserve Bank of India (RBI) through a formal ‘fraud monitoring return’.

Downgrade and industry reaction

The matter has already had repercussions. Moody’s recently downgraded IndusInd Bank’s standalone financial profile, citing deficiencies in risk oversight and internal controls. The development has triggered concerns across the banking industry about internal governance standards, especially in complex treasury operations.

As the bank prepares to release its audited annual results, all eyes remain on how it classifies the issue — a decision that could influence regulatory responses and investor sentiment in the months ahead.