IndusInd Bank fallout--RBI begins review of derivative position of lenders
The Reserve Bank of India (RBI) has begun a review of the derivative exposure of both private and state-owned banks after private lender IndusInd Bank reported a massive discrepancy in the forex derivative portfolio which could lead to an adverse impact on its net worth by Rs1,530 crore.
Mumbai:The Reserve Bank of India (RBI) has begun a review of the derivative exposure of both private and state-owned banks after private lender IndusInd Bank reported a massive discrepancy in the forex derivative portfolio which could lead to an adverse impact on its net worth by Rs1,530 crore. The central bank has asked lenders for details of their overseas borrowings and deposits as well as their forex hedge positions. The banking regulator is now assessing the hedging strategies of these banks and collecting information on their respective trades.
The country's fifth largest private lender IndusInd on Monday had reported a massive discrepancy in the forex derivative portfolio which could lead to an adverse impact on its net worth by Rs 1,530 crore, inviting downgrades from analysts and shaking investor confidence. The discrepancy, spanning 7 to 8 years, is expected to reduce the bank’s net worth by 2.35 per cent as of December 2024, according to its exchange filing.
Before new investment norms for banks kicked in from April 1, 2024, banks' asset liability management and treasury desks were permitted to
enter into internal swaps, where one cash flow is exchanged for another. An early termination of such deals led to the profit being accounted for while the loss was not, IndusInd Bank's CEO Sumant Kathpalia had said on Tuesday.
According to Reuters, the RBI wants "to ascertain that banks with heavy foreign liabilities are not exposed to a situation wherein any losses from internal hedges done previously have not been accounted for". The central bank also wants to evaluate each bank's internal compliance on treasury operations. If any discrepancies are found, the central bank may nudge lenders to go for an external audit, said the Reuters report.
Meanwhile, a report has also emerged that the central bank has asked the IndusInd Bank board to propose names of two external candidates
for the positions of Chief Executive Officer and Chief Operating officer. This development comes after the banking regulator last week
approved a one-year extension for Sumant Kathpalia’s reappointment as CEO. Kathpalia’s term, originally set to end on March 24, 2025, will
now conclude on March 23, 2026.
Shares of IndusInd Bank Ltd settled 4.43 per cent higher on Wednesday at Rs 685 apiece on the National Stock Exchange breaking a five day
losing streak after the management assured investors that Q4 will be a profitable quarter for the bank and the one-time hit due to the
disclosed lapses in derivatives accounting will not have a significant bearing going forward. The market cap of the bank stood at Rs 53365.16
crore. However, the stock is in the F&O ban on Wednesday which means no new positions can be created on the stock. A day earlier, the stock
had seen its biggest single-day drop of 27 per cent resulting in a market capitalisation erosion of nearly Rs 20,000 crore.
