IndusInd Bank Accounting Error Explained. IndusInd Bank is a big private bank in India and needs no introduction. Recently, it was found that there was a big mistake in how they kept their accounts for some financial deals. This news made the bank’s share price go down very quickly. This shows that people who invest money are very worried when they hear about problems in banks. It is very important that banks are honest and trustworthy. If people think a bank is not doing things correctly, they will lose their trust. We will explain this problem in simple words so that not only our bankers who are preparing for the promotion exam but everyone can understand what happened.
Table of Contents
The IndusInd Bank Accounting Issue
The main problem at IndusInd Bank was that they used two different ways to keep accounts for the same kind of financial deals. First, we need to understand what these financial deals, called “derivatives,” are. These are agreements where the value depends on something else, like the value of money in different countries or the interest rates. Banks use these deals to protect themselves from changes in the market.
In IndusInd Bank, one department, called the Treasury Desk, used a method called “mark-to-market” (MTM). This means they changed the value of the deals in their accounts every day to match the current market price. This method shows the true financial position of the bank.
Another department, called the Liability Desk, used a different method called “accrual accounting.” This method records money when it is earned or spent, not when it is actually received or paid. This allowed them to spread out losses from these deals over many years.
This difference in accounting methods caused a big problem. When the Treasury Desk recorded a gain, the Liability Desk did not record the full loss right away. Instead, they recorded it slowly over time. This made the bank’s profits look better than they actually were.
Having two different accounting methods for the same thing is not good. It shows that the bank did not have proper control over its accounts. Good accounting practice says that all departments should use the same methods for similar deals. The fact that this went on for many years shows that the bank’s checks and balances were not working properly.
RBI’s Mark-to-Market Rule
In September 2023, the RBI told all banks that they must use the “mark-to-market” method for all their derivative deals. This rule started on April 1, 2024.
This new rule meant IndusInd Bank had to change how they kept their accounts. The Liability Desk could no longer spread out losses. They had to record all losses immediately. This new rule showed the losses that had been hidden for a long time.
The RBI’s rule was very important. It showed that banks must be honest and keep accurate records. If the RBI had not made this rule, IndusInd Bank might have continued hiding their losses, which would have caused a bigger problem later.
The Financial Impact of IndusInd Bank Accounting Error
When the problem was discovered, IndusInd Bank said they had losses of more than ₹1,500 crore. Later, they said the losses were about ₹2,100 crore. This is a big part of the bank’s total worth, about 2.35%.
The bank’s share price fell by more than 20% in one day. This means the bank lost about ₹20,000 crore in value. This big drop shows that people were very worried about the bank’s financial health.
Financial Impact Summary:
- Reported Loss Amount: ₹1,500 crore / ₹2,100 crore
- Impact on Net Worth: 2.35%
- Stock Price Drop (March 11): 20%+ / 27%
- Market Capitalization Erosion: ₹20,000 crore
Questions and Concerns Raised by Experts and the Market
Many people had questions about why the bank did not report these losses earlier. The RBI rule started on April 1, 2024, but the bank did not report the losses until much later. This made people think the bank was not being honest.
A famous accountant, Mr. Amarjit Chopra, said that the bank’s Chief Financial Officer (CFO) did not do his job properly. He said the CFO gave wrong information to the bank’s board and the people who invested money. He said the bank should have recorded the losses immediately.
People also asked why the bank’s CFO left his job just before the problem was made public. And, they asked questions about why the bank’s top officers sold their shares before the news came out.
RBI’s Intervention and Assurance to Depositors
The RBI said that IndusInd Bank was still strong and had enough money. They told the bank to fix the problem quickly. They also gave the bank’s CEO a shorter extension to his job, which showed they were watching the bank closely.
The RBI’s quick action helped to calm people’s worries and stop them from taking their money out of the bank.
Expert Opinions and Analysis on the Broader Impact
Some experts said that the RBI might make stricter rules for all banks. They said this would be good for customers and investors. Other experts said that bigger banks were stronger and could handle problems better.
Some people were worried that customers might take their money out of IndusInd Bank. But, the people who own a big part of the bank said they would buy more shares, which showed they had faith in the bank.
IndusInd Bank’s Response and Remedial Measures
IndusInd Bank said they would fix the problem and that they had enough money to cover the losses. They hired an outside company to check their accounts. The bank’s CEO said they found the problem last year and told the RBI.
Conclusion
The problem at IndusInd Bank was caused by using two different accounting methods for the same financial deals. The RBI’s new rule forced the bank to reveal the losses. This caused a big drop in the bank’s share price.
The RBI acted quickly to reassure people. Experts had different opinions on the impact of the problem. IndusInd Bank said they would fix the problem and hired an outside company to check their accounts.
This problem shows how important it is for banks to follow proper accounting rules and be honest with their customers and investors.
Timeline of Key Events:
- Prior to April 2024: IndusInd Bank used two different accounting methods.
- September 2023: RBI said all banks must use “mark-to-market” accounting.
- April 1, 2024: RBI rule started.
- September-October 2024: IndusInd Bank found the problem.
- January 17, 2025: CFO left IndusInd Bank.
- March 7, 2025: RBI gave the CEO a shorter extension.
- March 10, 2025: IndusInd Bank announced the losses.
- March 11, 2025: Bank’s share price fell.
- March 15, 2025: RBI said the bank was strong.
- March 19, 2025: Bank’s share price started to recover.
