IndusInd Bank CEO resigns taking blame for accounting irregularities after RBI flags lapses, says 'I undertake moral..'

Sumant Kathpalia has resigned from his position as the Chief Executive Officer (CEO) of IndusInd Bank, following a serious issue related to the bank’s handling of internal derivative trades. This problem affected the bank's financial statements and led to growing concerns about how the bank is being managed. In his resignation letter, Kathpalia said he was taking "moral responsibility" for the matter and asked the bank to consider his resignation effective by the end of the same business day.

This development comes just one day after Arun Khurana, the Deputy CEO of the bank, also stepped down. Khurana had direct responsibility for the Treasury Front Office – the division where the problematic derivative accounting occurred. In his resignation letter, Khurana wrote that the recent events were unfortunate and that he accepted full responsibility as a senior leader of the bank.

Sources close to the matter said that the Reserve Bank of India (RBI) had advised both Kathpalia and Khurana to resign after discovering the accounting lapse. The RBI was reportedly not satisfied with the way the bank's internal controls were functioning, especially in the area of treasury operations. The derivative trades in question had not been accounted for properly, which had an impact on the bank's profit-and-loss statement and even reduced its net worth.

In response to this leadership crisis, IndusInd Bank has reached out to the RBI, seeking permission to form a committee of senior executives. This group will take on the CEO’s responsibilities during the transition period until a new permanent CEO is appointed. So far, the bank has not named an interim replacement.

This sudden leadership shake-up presents a major challenge for IndusInd Bank. Along with having to regain the trust of investors and regulators, the bank will also need to strengthen its risk management practices and improve oversight to prevent such issues in the future.