Shares of IndusInd Bank took a sharp hit on Wednesday morning following a high-profile resignation that has shaken investor confidence and drawn regulatory scrutiny. The stock fell nearly 3% after CEO Sumant Kathpalia stepped down, accepting moral responsibility for serious accounting lapses in the bank’s derivatives portfolio.
Leadership Shake-Up Amid Regulatory Pressure
As of 9:22 a.m., IndusInd Bank’s stock was down 2.78%, trading at ₹814. The drop followed Kathpalia’s sudden resignation, which came in the wake of mounting concerns over the bank’s handling of derivatives accounting. Appointed CEO in March 2020, Kathpalia cited “moral responsibility” for the issue in his resignation letter, stating he was accountable for the acts of omission and commission identified during an external audit.
The situation escalated just a day earlier when Deputy CEO Arun Khurana also resigned. Sources familiar with the matter disclosed that the Reserve Bank of India (RBI) had advised both senior executives to step down after an audit exposed substantial irregularities. These discrepancies, first reported by the bank on March 10, revealed potential mismatches in derivative account balances, prompting a comprehensive review.
Financial Impact and Strategic Response
Initial estimates suggested the derivatives error could affect the bank’s net worth by 2.35% as of December 2024. However, a follow-up audit submitted on April 15 placed the actual loss at ₹1,979 crore as of June 2024. As a result, IndusInd Bank has revised its expected post-tax net worth impact to 2.27%.
The bank has committed to incorporating these financial adjustments into its FY2024–25 statements and is taking steps to improve internal controls around its derivatives operations. Additionally, it has approached the RBI for approval to form a temporary executive committee to steer the institution in the absence of a formal CEO. An interim leader has not yet been appointed.
This governance crisis arrives at a delicate time for IndusInd Bank, which must now work to reassure stakeholders and demonstrate compliance improvements. Analysts monitoring market trends suggest that while the reputational damage is significant, swift corrective measures could limit the long-term fallout.
Meanwhile, the broader market environment remains volatile, with investor focus increasingly shifting to sectoral movements such as the bank rally and performance of auto stocks. The shake-up at IndusInd serves as a cautionary tale on the importance of transparency and sound risk management in financial institutions.