IndusInd’s Treasury Troubles Raise Questions for Regulators
An IndusInd Bank advertisement (Image X.com)
By P. SESH KUMAR
The alleged ₹1,817-crore overstatement is more than a treasury misstep—it is a test of whether India’s banking system, auditors and regulators can detect risks hidden behind complex derivatives, manual accounting entries and delayed loss recognition.
New Delhi, June 8, 2026 — The IndusInd Bank episode is not a routine accounting error. It is a governance wound dressed up as a treasury misstatement. The reported PwC review points to manual accounting entries, weak maker-checker controls, poor linkage between ALM and trading desks, non-marking-to-market of forwards, and profit-and-asset overstatement of ₹1,817.58 crore. Earlier, IndusInd itself had acknowledged derivative-accounting discrepancies and an adverse impact on net worth, later reflected in FY2024-25 financials.
The bank’s defence is that it discovered the issue, commissioned reviews, accounted for the impact, and began corrective action. The harsher view is that a sophisticated private bank allowed internal treasury plumbing to become a profit-smoothing machine, where complexity, manual overrides and weak oversight hid losses until regulation and market stress forced daylight. PwC’s role is also delicate: it was not the statutory auditor here but a reviewer, yet its own chequered global and Indian history means its report is useful evidence, not holy scripture.
The background is by now familiar. IndusInd’s derivatives problem first exploded publicly in March 2025, when the bank disclosed accounting discrepancies in its derivative portfolio. Reuters reported that the issue related to internal derivative trades and that the estimated impact was about 2.35 per cent of the bank’s net worth; an external probe later quantified the hit at around ₹1,979 crore, or 2.27 per cent of net worth as of December 2024. The bank’s FY2024-25 annual report says it took measures to understand the root cause, ascertain financial impact, take corrective action and fix accountability, and that the impact was reflected in the accounts for the year ended March 31, 2025.
The fresh ET/PwC narrative sharpens the charge. According to the ET, PwC reportedly found that the treasury back office posted manual entries to offset trading-desk losses, creating a receivable pool of Rs 2,201.76 crore from Asset Liability Mismatch (ALM) as on March 31, 2024. In regulatory terms, the ALM function is overseen by the bank’s Asset Liability Management Committee (ALCO), usually comprising the CEO, CFO, Treasurer, Chief Risk Officer and other senior executives. The RBI’s ALM framework requires banks to monitor maturity mismatches, interest-rate risk and liquidity risk through this committee.
In one sentence, ALM is the nerve centre that ensures a bank’s assets, liabilities, funding, liquidity and hedging activities remain aligned; when ALM controls fail, accounting distortions and hidden treasury losses can emerge, as the IndusInd episode appears to demonstrate.
After adjusting ₹384.18 crore of swap-cost amortisation, the overstatement of profit and assets stood at ₹1,817.58 crore. PwC also reportedly found lapses in foreign exchange forward accounting, cross-currency swap accounting and swap-cost amortisation; forwards entered by the ALM desk with external counterparties were allegedly not marked to market at reporting dates, leaving unrealised losses of ₹121.46 crore as of March 2024 and ₹161.43 crore as of June 2024 outside the relevant reporting periods. These are not clerical slips. These are precisely the kinds of weaknesses that turn a treasury desk from a risk-management engine into an accounting fog machine.
The core issue was the broken bridge between the ALM desk and the trading desk. ALM exists to manage balance-sheet risks; the trading desk executes market transactions. If internal deals between these desks cannot be directly mapped to external hedges, then hedge accounting becomes vulnerable to fiction.
One Code to Rule the Market? SEBI Wades into Reform and Power
The PwC extract quoted by ET says the bank could not clearly establish whether on-balance-sheet assets and liabilities, though covered internally by ALM, were hedged externally at bank level. That is devastating because a hedge is not a slogan. It is a documented relationship between exposure, instrument, risk, valuation, effectiveness and accounting treatment. Without that chain, profits can be pulled forward, losses deferred, and assets inflated.
There are, however, two sides to the story. The bank’s side is that this was detected, investigated and absorbed. Its annual report says corrective steps were taken and financials now reflected the concerns brought to its attention. The RBI, according to Reuters, did not treat the issue as a solvency crisis, and the bank continued as a going concern. The less charitable side is that a problem of this size and vintage should not have survived treasury controls, concurrent audit, statutory audit, internal audit, risk committees, board oversight and regulatory supervision. Reuters had earlier reported that the discrepancies stretched back several years and that leadership exits followed, including Deputy CEO Arun Khurana and MD-CEO Sumant Kathpalia.
The earlier “accounting shenanigans” were centred on derivative accounting. Reuters reported that IndusInd’s internal derivative trades, linked to foreign currency deposits and swaps, were allegedly not properly marked to market, thereby concealing losses while external hedging trades showed profits. The trigger was regulatory tightening: RBI barred inter-departmental derivatives trading by banks from April 1, 2024, and once the internal positions had to be unwound or recognised properly, the losses surfaced.
PwC’s role must be treated carefully. In this exercise, PwC appears to have been a commissioned reviewer of accounting treatment, not the statutory auditor signing IndusInd’s accounts. That makes its report a forensic/diagnostic input, not an audit opinion. But PwC itself carries baggage. In India, its name remains linked in public memory with Satyam; SEBI’s 2018 order barred PwC network entities from listed-company audit work for two years, though SAT later set aside that ban. Globally, PwC Australia suffered a major tax-leak scandal in which confidential government tax information was misused for commercial advantage, leading to partner exits and sale of its government consulting business.
That does not automatically discredit PwC’s IndusInd findings. A tainted doctor can still diagnose a disease correctly. But it does mean the regulators should not stop at “PwC has said so.” They must triangulate PwC’s findings with system logs, Calypso-Finacle reconciliations [Calypso is the bank’s treasury and derivatives trading system, while Finacle is the bank’s core banking and accounting system- in simple terms, it is like ensuring that the bank’s trading diary (Calypso) and its official accounting ledger (Finacle) tell the same story every day], tickets, valuation models, manual journal approvals, statutory-audit working papers, risk committee minutes, ALCO records, RBI inspection observations and insider-trading records.
Reuters reported that Grant Thornton’s forensic review also flagged poor accounting diligence, manual processing issues and suppressed internal communications, and found that senior executives had traded shares before disclosure while aware of discrepancies. Those allegations, if established by regulators, would shift the matter from accounting weakness to market-abuse territory.
The lessons are stark. For IndusInd, manual treasury entries must become exception-only, pre-approved, digitally logged, maker-checker reviewed, independently reconciled and board-reportable above a low threshold. ALM-trading linkages must be documented trade by trade, not justified by broad portfolio logic. Hedge accounting must be evidence-led, not intention-led. For statutory auditors, treasury audit cannot remain a high-level analytical review; derivative valuation, internal deals, off-system adjustments and model governance require specialist testing. For RBI, the case argues for sharper supervisory analytics on bank treasuries, including mandatory reporting of manual journals, internal derivative unwind losses, hedge documentation failures and exceptions between treasury platforms and core banking systems. For SEBI, the disclosure question is equally important: when did management know, what did it know, who traded, and why was the market told only when it was told?
The way forward is not another ritual committee. It is a hard-control architecture. Banks should have real-time reconciliation between treasury and core banking systems; immutable audit trails for manual entries; independent valuation validation; quarterly board-level certification of derivative accounting; compulsory external rotation of treasury-control reviewers; and prompt disclosure of material accounting exceptions. RBI and NFRA should examine whether statutory auditors exercised sufficient professional scepticism, especially where complex derivative portfolios produced conveniently smooth profits. SFIO, EOW and SEBI must avoid theatre, but they must not avoid teeth.
The IndusInd story is therefore not merely about ₹1,817 crore. It is about whether Indian banking supervision can see through sophistication. The old frauds were forged invoices and missing cash. The new ones, or the new near-frauds, live in valuation models, internal trades, manual journals and delayed loss recognition. A modern bank does not collapse only when money leaves the vault. It begins to rot when numbers stop telling the truth.
(This is an opinion piece. Views expressed are the author’s own.)
Follow The Raisina Hills on WhatsApp, Instagram, YouTube, Facebook, and LinkedIn
About The Author
