IndusInd Bank’s top two executives traded in its shares while being aware of accounting lapses at the bank in its derivatives portfolio but before those were made public, an audit report by Grant Thornton has found.

This could amount to insider trading. 

Soon after Grant Thornton submitted its report in April, IndusInd Bank managing director & CEO Sumant Kathpalia resigned with immediate effect. A day before, IndusInd Bank deputy CEO Arun Khurana had announced his resignation.

Grant Thornton, a global audit and advisory firm, was hired by IndusInd Bank to conduct an independent forensic investigation. 

Earlier in March, IndusInd Bank had disclosed accounting lapses and estimated losses to be nearly Rs 2,000 crore in its derivatives portfolio. 

Grant Thornton found as a result of its review of internal accounts and communications that there were indications Kathpalia and Khurana traded in shares of IndusInd “during a period of seeming non-disclosure,” wire agency Reuters reported, quoting a summary of the findings.

"Considering that employees had knowledge of incorrect accounting and/or its impact but traded in shares of IBL during the period may also require a determination from an insider trading perspective," the summary said.

As reported earlier by Indianbankingnews.com, Kathpalia and Khurana sold shares to make a get gain of Rs 157 crore during 2023 and 2024. Kathpalia sold nearly 950,000 shares, valued at Rs 134 crore, between 24 May 2023 and 25 June 2024, according to BSE insider trading data. He also bought 396,000 shares worth Rs 34 crore. His net gain was thus Rs 100 crore during this period. 

Similarly, Khurana sold 550,000 shares for Rs 82 crore over 2023-24. He also purchased 238,000 shares worth Rs 25 crore. He thus made a net gain of Rs 57 crore during this period. 

In his resignation letter last month, Kathpalia said he was taking "moral responsibility", while Khurana resigned citing "unfortunate developments". 

The document did not name any other executives in the context of share trading, but it mentioned one other executive's handling of the information about the accounting lapses.

The summary of Grant Thornton's findings did not disclose further details of the share trading or offer any conclusions about its nature, Reuters reported.

The summary document also noted "less than adequate" emphasis on "accounting analysis and rigour", has not been made public, it added.

In March, IndusInd Bank disclosed that following an internal review it expected a 2.35% hit to its net worth because of internal derivatives trades that did not comply with central bank rules.

The summary of Grant Thornton's findings said many finance and treasury executives at the bank were aware of the accounting issues and the Market Risk team flagged its concerns way back in May 2015, Reuters reported.

"We also note other emails and communications that indicate suggestions to delete pertinent communications as well as suppressing sharing of information on this aspect," the document said, without naming any individuals in that context.

Problems at the bank were amplified by "relatively manual accounting and computations", missing or inadequate supporting documentation and inadequate standard operating procedures, it said.

Meanwhile, the Reserve Bank of India has approved IndusInd Bank’s board to appoint an interim “committee of executives” to oversee the operations of the bank in the absence of a new CEO.