After Grant Thornton submitted its investigative report into the accounting lapses in the derivatives portfolio, IndusInd Bank managing director and CEO Sumant Kathpalia resigned as part of a top management shakeup exercise. 

A day earlier, the private lender's deputy CEO Arun Khurana had resigned with immediate effect over the same issue, which resulted in the bank losing nearly Rs 2,000 crore.

Kathpalia took “moral responsibility” for “various acts of commission and omission” in the derivatives issue. “I wish to submit my resignation from the services of the bank in relation to the ongoing derivatives discussion. I undertake moral responsibility, given the various acts of commission/omission that have been brought to my notice,” Kathpalia stated in his resignation letter. 

The bank’s board has sought the Reserve Bank of India’s (RBI) approval to constitute a “committee of executives” to oversee the duties, roles and responsibilities of the CEO for an interim period until a permanent successor is appointed. 

The bank is expected to carry out a wider reshuffle in senior roles as it fights to regain credibility and provide assurance to its depositors. In the March quarter, IndusInd Bank had reported a two percentage point decline in the growth of its term and low-cost deposits.

The Mumbai-based bank, promoted by the Hinduja family, said Grant Thornton had identified the incorrect accounting of internal derivatives trades as the root cause of the issue. The accounting errors had reduced the bank’s balance sheet by $230 million. Grant Thornton was appointed to investigate into the discrepancies in the accounting of IndusInd Bank’s derivatives portfolio and examine the roles and actions of its key employees.

Earlier this month, external agency PwC pegged the negative impact of IndusInd Bank’s accounting lapses in its derivative portfolio at Rs 1,979 crore. This represents 2.27% of the private sector bank’s net worth as of December 2024, slightly lower than the bank’s earlier internal review  estimate of an adverse impact of approximately 2.35%.

In March, the country's fifth-largest lender disclosed accounting discrepancies in its derivatives portfoIio. In the same month and just before the accounting discrepancies were revealed, the RBI extended Kathpalia’s term as MD & CEO by just one year, despite the board clearing him for a three-year extension. This was the second consecutive time that the central bank granted a shorter tenure for Kathpalia than the usual three-year extended term it gives when it approves the reappointment of a CEO. 

A career banker with 37 years of experience, Kathpalia has been with IndusInd Bank for 17 years. He has also worked with global banks, including Citibank, Bank of America and ABN AMRO. He was appointed CEO in March 2020, replacing Romesh Sobti, who had led the bank for over a decade.

In his resignation letter, Khurana had stated, "Considering the recent unfortunate developments, wherein the bank determined an adverse accounting impact on P&L, on account of incorrect accounting for internal derivative trades, I having oversight of the Treasury Front office function, as the Whole Time Director, Deputy CEO and a part of senior management of the bank, hereby resign, effective immediately."