IndusInd Bank is currently considering imposing penalties on its former Managing Director and CEO, Sumant Kathpalia, and Deputy CEO, Arun Khurana, following findings from a forensic audit. The bank’s board is deliberating over these penalties after a forensic audit report by Grant Thornton revealed significant issues regarding insider trading and accounting discrepancies. As of now, no official announcements have been made, but the issue has raised concerns due to its potential impact on both the bank and its former executives.

Forensic Audit Highlights Accounting Irregularities and Insider Trading Violations

According to sources familiar with the matter, the forensic audit conducted by Grant Thornton identified that Kathpalia and Khurana were aware of accounting discrepancies related to the currency derivatives transactions before the issue became public. The report also found evidence of both executives engaging in stock transactions of the bank’s shares, even as the discrepancies were being uncovered. These actions are seen as violations of the bank’s insider trading policy, which led the board to consider penalties based on these breaches.

Grant Thornton’s audit also revealed a notional profit recorded as a result of incorrect accounting related to early termination of internal derivative trades, which had a direct impact on the bank’s profit and loss (P&L) account. The audit further highlighted the role of key executives, including Kathpalia and Khurana, in overseeing these transactions. With this evidence, the board is now focusing on determining the quantum of penalties in line with the bank's established insider trading rules.

Legal Opinion Sought for Insider Trading Violation

As part of the ongoing investigation, the board has sought legal opinions to understand the full extent of the violations and to ensure that any penalties imposed align with the bank's internal rules and SEBI’s insider trading regulations. According to one of the sources, the penalties would be decided based on the number of violations identified in the forensic report, and the executives would be given an opportunity to respond to the allegations before any final decision is made.

The potential penalties are a significant development for the bank, considering that the bank had already imposed a fine on an independent director earlier for what was described as inadvertent trading. The implications of this case could lead to more severe regulatory actions by SEBI, especially considering that insider trading violations by key executives at a major Indian bank have far-reaching consequences.

Khurana and Kathpalia's Resignations Amid Controversy

Following the forensic audit’s revelations, Arun Khurana resigned from his position as Deputy CEO on April 28, 2025, describing the events leading to the discrepancy as “unfortunate.” Khurana was responsible for overseeing the bank's Treasury function. Shortly thereafter, Sumant Kathpalia, the former MD&CEO, also resigned from his post. Both resignations were seen as a response to the mounting pressure and potential consequences stemming from the audit findings.

SEBI’s Role and Potential Regulatory Actions

Should the board proceed with imposing penalties on the former executives, SEBI, the market regulator, may also step in to take appropriate action, given that listed companies like IndusInd Bank are required to maintain robust insider trading policies in compliance with SEBI’s regulations. This case highlights the growing importance of corporate governance and the need for financial institutions to maintain transparency and accountability at the highest levels.

IndusInd Bank’s Commitment to Transparency and Accountability

In an official statement issued on May 9, IndusInd Bank acknowledged the findings of the Grant Thornton report and stated that it was actively examining these findings in line with its insider trading policy. The bank emphasized that it would take necessary actions under applicable laws, including its own Insider Trading Code, once the examination was complete.

The issue first came to light in March 2025 when the bank disclosed an accounting discrepancy related to currency derivatives. The bank appointed Grant Thornton as an external forensic auditor to identify the causes of these discrepancies, which ultimately resulted in a cumulative adverse impact of Rs 1,959.98 crore on the bank's financials.

As IndusInd Bank navigates this internal investigation, it is also taking steps to realign the roles and responsibilities of its senior management to prevent future lapses and ensure better corporate governance.

Conclusion: Accountability at High Levels

This unfolding situation underscores the need for vigilance in the banking sector and the importance of holding top executives accountable for their actions. IndusInd Bank’s internal review process will likely set a precedent for other financial institutions in India, reinforcing the significance of maintaining transparent financial practices and upholding ethical standards.

The board’s decision on whether or not to impose penalties on Sumant Kathpalia and Arun Khurana will not only affect the future of these two executives but may also have wider ramifications on the banking industry as a whole, as it shows the increasing focus on corporate accountability and insider trading regulations in India’s financial sector.

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