IndusInd Bank CEO Sumant Kathpalia Resigns Amid ₹2,000 Crore Derivatives Accounting Lapse

In a major leadership shakeup, Sumant Kathpalia, the Managing Director and Chief Executive Officer (MD & CEO) of IndusInd Bank, has resigned with immediate effect, taking moral responsibility for severe accounting discrepancies in the bank’s derivatives portfolio. The lapses, which were uncovered during an internal investigation and confirmed by external audit firms, have led to a cumulative loss of nearly ₹2,000 crore.

Background of the Resignation

Kathpalia Steps Down Over Moral Responsibility

Kathpalia tendered his resignation on Tuesday, citing “moral responsibility” for “various acts of commission and omission” that came to light following an audit investigation. In his resignation letter, he stated:

This move comes just a day after Deputy CEO Arun Khurana also resigned in connection with the same matter.

Uncovering the Accounting Irregularities

Internal Review and External Audit Findings

The saga began unfolding on March 10, 2025, when IndusInd Bank notified stock exchanges that an internal review had uncovered discrepancies in its derivatives portfolio. Initial assessments estimated a 2.35% adverse impact on net worth as of December 2024.

The bank subsequently engaged PwC (PricewaterhouseCoopers) to validate the estimates and later appointed Grant Thornton, a global audit and advisory firm, to conduct a thorough forensic investigation into the root cause and to examine the roles of key employees.

On April 28, the bank revealed that Grant Thornton’s report identified incorrect accounting of internal derivatives trades, particularly during early termination, as the core issue. These trades had led to the recording of notional profits, which resulted in major accounting distortions. The cumulative negative impact was estimated at ₹1,959.98 crore as of March 31, 2025.

Regulatory and Board-Level Developments

RBI Involvement and Interim Leadership Plan

In light of the CEO’s exit, the bank’s board has approached the Reserve Bank of India (RBI) to approve the formation of a “Committee of Executives (CoE)” that will oversee the CEO’s responsibilities on an interim basis. This temporary arrangement mirrors a similar move made by Tamilnad Mercantile Bank in 2023, which had set up a three-member executive committee during a leadership void.

Significantly, the RBI had extended Kathpalia’s term as MD & CEO by only one year in March 2025, despite the board’s recommendation for a three-year term. This was the second consecutive year where the central bank had limited his tenure. During an analyst call, Kathpalia had acknowledged that discrepancies in the derivatives portfolio might have played a role in the RBI’s cautious stance.

Kathpalia’s Tenure and Contributions

Rapid Growth Despite Challenges

Appointed as MD & CEO in March 2020, Kathpalia succeeded Romesh Sobti, who had led IndusInd Bank for over a decade. Before becoming CEO, Kathpalia headed the consumer banking division and played a crucial role in diversifying the bank’s retail loan book.

During his four-year leadership:

• The loan book grew from ₹2.06 trillion to ₹3.66 trillion
• The deposit base expanded from ₹2.02 trillion to ₹4.09 trillion
• The net worth rose from ₹34,387 crore to ₹67,106 crore

Despite these strong numbers, accounting integrity issues have clouded his legacy.

The Fallout and Financial Repercussions

Confirmed Losses and Market Impact

According to PwC’s report submitted earlier in April 2025, the discrepancies in derivative trades were confirmed, with a negative impact of ₹1,979 crore as of June 30, 2024. The post-tax effect was estimated at 2.27% of net worth for December 2024, when the bank’s net worth stood at ₹65,102 crore.

These revelations have significantly dented investor confidence and placed corporate governance at the forefront of concerns for both regulators and shareholders.

Kathpalia’s Career and Banking Experience

A chartered accountant by training, Kathpalia has worked with global banks like Citibank and Bank of America. He joined IndusInd Bank in 2008 alongside Romesh Sobti, helping to build a strong retail and consumer finance franchise. His strategic focus on expanding the consumer loans portfolio and reducing concentration risks had been widely appreciated until the recent setbacks.