IndusInd Bank faces ₹1,500 crore derivative losses

IndusInd Bank has faced significant issues related to its accounting practices regarding derivatives, leading to a reported loss of over ₹1,500 crore. This problem was highlighted by a directive from the Reserve Bank of India (RBI) in September 2023, which mandated that all derivatives be valued at market prices. This new requirement is set to take effect on April 1, 2024. The bank's delayed acknowledgment of these losses has raised eyebrows. Experts question why the bank did not report these losses earlier in the quarters leading up to the directive. The confusion stems from the complex nature of derivative accounting and the different methods used by various departments within the bank. Some departments reported profits immediately, while others deferred reporting losses over time. The losses were primarily a result of the bank raising funds in foreign currencies while managing exchange rate risks with derivatives. The discrepancy in accounting methods allowed IndusInd to show profits even when it actually had losses looming. This practice was sustainable until the RBI's new directive forced the bank to reveal its true financial state. Critics point out that since 2015-16, accounting standards have encouraged the use of market values for derivatives. However, these guidelines were not mandatory, leaving room for inconsistency in how the bank reported its transactions. As a result, IndusInd had operated with two different accounting methods, masking potential losses from shareholders. There are still questions regarding whether IndusInd has unwound its risky derivatives, which could crystallize losses into real financial impacts. The situation raises concerns about oversight from auditors and regulators, who typically examine the bank's financial books closely. More transparency is needed to restore trust in the banking system following this debacle.