IndusInd Bank's Derivative Dilemma: A Crisis Revealed

IndusInd Bank's deviation from standard derivative accounting practices led to a $175 million balance-sheet deficit, sparking a crisis in its history. The turmoil was exacerbated by a sharp rupee depreciation. Regulatory bodies are scrutinizing the bank's transactions and management's oversight of complex derivative deals.

IndusInd Bank faces a significant crisis after disregarding established accounting practices for derivatives, resulting in a $175 million balance-sheet deficit. This revelation marked the biggest upheaval for the lender in three decades, as several sources confirmed the bank's efforts to prioritize profit had masked accounting discrepancies.

The 2.35% shortfall in net worth might have remained hidden if not for a recent sharp decline in the rupee's value, multiple sources asserted. In March, IndusInd disclosed these discrepancies, which equaled an entire quarter's profits and wiped out about 25% of its market value.

The crisis prompted the Reserve Bank of India (RBI) to seek new leadership for IndusInd, although the bank denied any pressure from the central bank. This debacle highlights the inherent risks of complex derivative transactions and the need for stringent board controls in Indian banks, including IndusInd's.

(With inputs from agencies.)