With potential losses nearing ₹2,000 crore, IndusInd Bank finds itself at a regulatory and reputational crossroads. At the heart of the issue is how it categorizes a major accounting lapse in its foreign exchange derivative operations: as an error, a discrepancy—or outright fraud.

As IndusInd Bank finalizes its annual accounts, a storm brews over a ₹2,000 crore hit tied to foreign currency derivative transactions that could redefine the institution’s credibility. The private sector bank is under increasing pressure from its statutory auditors to clarify whether the loss-inducing “accounting discrepancy” in question was merely an oversight or a deliberate financial misrepresentation tantamount to fraud.

So far, IndusInd has publicly referred to the matter as a “discrepancy” a term that downplays intent and avoids regulatory triggers. But sources close to the matter reveal that the bank’s auditors MSKA & Associates (a BDO affiliate) and Chokshi & Chokshi have asked the board to provide a clear classification. If labeled as “fraud,” the matter must be mandatorily reported to the Ministry of Corporate Affairs under Section 143(12) of the Companies Act, 2013.

At the core of the issue lies a mismatch in accounting treatments between two sides of the same bank. One part of the bank, which raises foreign currency deposits in dollars and yen, reportedly used accrual-based accounting, while the treasury desk handling derivative trades with other banks followed mark-to-market valuation practices. This inconsistent methodology led to gains being booked immediately, while losses were deferred—a classic case of inflated profits over previous financial years.

When this mismatch came to light, the correction done in one financial sweep wiped out around ₹2,000 crore from the bank’s books. Insiders suggest that the impact was so severe that it may lead to the revision of past earnings and even restatement of financials.

A forensic audit by Grant Thornton has reportedly identified specific internal deals and employees associated with the practices. Now, the bank’s board, helmed by Chairman Sunil Mehta and its audit committee under Bhavna Doshi, must determine if the actions of these individuals cross the threshold from negligence to fraud.

If the board concedes that fraud occurred, it would trigger not only regulatory filing with the Ministry of Corporate Affairs but also potentially lead to enforcement from the RBI and SEBI. According to Section 477A of the Indian Penal Code still referenced by RBI until recent law updates, falsification of accounts, including digital records, constitutes a criminal offence.

Such a determination could also lead to reputational ruin and open the floodgates for class action suits or shareholder activism, particularly if the financial restatements affect earnings per share and dividend outlooks. Furthermore, it could set an uncomfortable precedent for Indian banks that have historically brushed accounting irregularities under the carpet by terming them “errors” or “mismatches.”

One senior banker not associated with the bank told us, “Whether you call it creative accounting, irregularity, or fraud, it’s ultimately about intent. Auditors are legally bound to report frauds. The real test is whether IndusInd chooses transparency over face-saving.”

With the 2024–25 annual financials soon to be released, the industry and regulators will be watching IndusInd Bank closely. The language used in its disclosures could determine not only its legal liability but also its standing among investors, credit rating agencies, and customers.

If the bank acknowledges fraud, it will be required to submit a ‘Fraud Monitoring Return’ (FMR) to the RBI and notify government agencies. If not, it will have to convincingly argue that the loss stemmed from technical lapses and not from an intent to deceive.