IndusInd Bank announced the sudden resignation of its CEO, Sumant Kathpalia, with immediate effect, after a derivatives accounting blunder hit the bank's net worth.
The resignation of Kathpalia follows just two days after the bank's deputy CEO, Arun Khurana, also quit. This is a major setback in the management of the bank, with sources suggesting a larger leadership change and overhaul will be happening in the coming weeks.
The resignation comes after a Reserve Bank of India (RBI) recommendation that both Kathpalia and Khurana resign over accounting irregularities in the derivatives book of the bank. The RBI urged them to resign following the revelation of accounting irregularities that totalled an equivalent of a full quarter's profit. The accounting lapses had persisted for years based on an emphasis on profit and weak internal checks.
In his letter of resignation, Kathpalia took moral responsibility for the deficiencies, saying, "I undertake moral responsibility, given the various acts of commission/omission that have been brought to my notice." Kathpalia is a nearly three-decade-old banker who joined IndusInd Bank more than 12 years ago and was appointed CEO in March 2020. He had been given a one-year extension by the RBI just before the accounting defects were made public.
The bank, with a balance sheet of $63 billion, has sought RBI clearance to establish a board of executives to deal with CEO functions until a full-time replacement is found. In India, all senior banking appointments must be approved by the RBI.
In spite of the management instability, sources have assured that depositors of the bank are secured and there is no reason for concern regarding a bank run. But the irregularities have resulted in a reduction in the expansion of the term and low-cost deposits of the bank in the March quarter.
Shares in the bank have declined 7% since the accounting problem was revealed. Vinit Bolinjkar, equity research head at Ventura Securities, said the leadership void would slow business growth and may affect the bank's growth, profitability, and efficiency until a new leadership team is in place. More announcements about the bank's management are likely to be made in the coming days.
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