IndusInd Bank falls 3% after the CEO resigns over the Derivatives Issue

On Wednesday, IndusInd Bank's share price on the NSE touched a day’s low price of Rs. 810.05 per share, indicating a 3.2 percent decline. The company recently witnessed a significant leadership change with the resignation of its CEO, Sumant Kathpalia, and Deputy CEO, Arun Khurana. These resignations were triggered by accounting discrepancies in the bank’s derivatives portfolio, which revealed problems in financial reporting and governance issues, shaking investor confidence and prompting regulatory intervention.

Events leading to the Resignations

In March 2025, when IndusInd Bank disclosed that mark-to-market (MTM) losses in its derivatives book could impact up to 2.35 percent of its net worth, translating to nearly Rs. 1,600 crore, this news sent panic through the market, causing the bank’s shares to plunge sharply by about 25 percent from Rs. 900 to around Rs. 686 per share. The losses were driven primarily by incorrect accounting of internal derivative trades, especially those involving early termination of contracts. These errors had led to the recording of notional profits that did not exist, thereby the bank’s financial health was projected as it should be.

In response, the bank’s board appointed an independent professional firm on March 20, 2025, to conduct a detailed investigation into the accounting lapses. The firm submitted its report on April 26, confirming an adverse impact of Rs. 1,959.98 crore on the bank’s profits as per the report estimates.

Resignation of Deputy CEO & CEO

Arun Khurana, who was the Deputy CEO and had oversight of the Treasury Front Office function, including the derivatives portfolio, resigned on April 28, 2025. In his resignation letter, Khurana took moral responsibility for the accounting lapses. He acknowledged that the incorrect accounting for internal derivative trades had adversely impacted the bank’s profit and loss statement.

Following Khurana’s departure, Sumant Kathpalia resigned as Managing Director and CEO on April 29, 2025. Kathpalia’s resignation letter stated that he was taking moral responsibility for the “acts of commission and omission” brought to his notice in relation to the derivatives accounting issues. His decision to step down also had an effect from the Reserve Bank of India’s (RBI) stance. The RBI had granted only a one-year extension earlier in 2025, which can signal regulatory discomfort with the bank’s governance under his leadership. Usually, the extension would be for three years.

RBI Approves Interim Leadership

The bank had already discontinued all internal derivative trading from April 1, 2024, as a preventive measure. After submitting the investigation report, the board took steps to fix accountability, including holding responsible employees accountable and reshuffling senior management roles. The RBI also approved the formation of an executive committee to oversee the bank’s operations until a new CEO is appointed. This development occurred after the CEO's resignation.

Impact and Outlook

The resignations of the CEO and Deputy CEO have created a leadership void and raised concerns about customer trust and the bank’s future growth plan. Market analysts have noted that rebuilding a credible leadership team will take time, and until then, the bank’s profitability and operational efficiency may be affected.