IndusInd Bank on Thursday said its internal audit department (IAD) has found that Rs 674 crore has been incorrectly recorded as interest in the microfinance loan book over three quarters of FY24-25. This was fully reversed as on 10 January 2025. 

The IAD, which submitted its report on 8 May, has also found “unsubstantiated balances” of Rs 595 crore in "other assets" accounts of the bank, besides examining the roles and actions of key employees in this context.

In a regulatory filing, the Hinduja Group-owned bank said this balance was, later in January 2025, set off against corresponding balances appearing in "other liabilities" accounts.

The private lender further stated that following receipt of a whistleblower complaint, the IAD was asked by the audit committee of the board to review transactions recorded in "other assets" and "other liabilities". This was in addition to the review of the bank's microfinance (MFI) business, which the beleaguered lender had disclosed to the stock exchanges on 22 April.

On  22 April, IndusInd had said that as part of the process of finalisation of accounts, the bank's IAD is conducting a review of the bank's MFI business to examine certain concerns and it has engaged EY to assist the IAD.

The IAD has since submitted its report on 8 May.

"The board is taking necessary steps to strengthen internal controls, fix accountability of the persons responsible for these lapses and will take action as appropriate," IndusInd said.

In March, the private sector bank had reported accounting lapses in the derivative portfolio which were estimated to have an adverse impact of approximately 2.35% of the bank's net worth as of December 2024.

The bank had appointed external agency PwC to assess the impact on the bank's balance sheet, lapses at various levels and suggest remedial action.

The agency in its report has quantified the negative impact of Rs 1,979 crore.

Last month, CEO Sumant Kathpalia and deputy CEO Arun Khurana resigned from the bank, soon after Grant Thornton submitted its report. The bank had hired Grant Thornton to conduct a forensic audit into accounting lapses.

IndusInd board has now appointed a committee of executives, approved by the Reserve Bank of India, to oversee the operations of the bank until a new MD & CEO assumes charge or a period of three months expires.

Last week, Moody's Ratings affirmed IndusInd Bank's rating, but downgraded the outlook to negative reflecting the potential for further impact in the bank's solvency, funding or liquidity.

The US-based agency also downgraded IndusInd Bank's standalone credit profile to ba2 from ba1 reflecting weakness in its internal controls as highlighted by the discrepancy in derivatives accounting, inadequate management oversight and concerns about the bank's medium term strategy due to resignation of senior leadership without adequate succession planning.