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Fraud-hit IndusInd Bank on Wednesday posted a record net loss of Rs 2,329 crore for the March quarter, its worst-ever performance, after the lender took a series of one-time hits to clean up its books and recognise past accounting lapses. The heavy quarterly setback followed deep-rooted governance failures, incorrect reporting of derivatives, and misclassification of microfinance assets, PTI reported.Fresh slippages soared to Rs 5,014 crore, with Rs 1,800 crore emerging from misclassified stress in the microfinance book now recognised as gross non-performing assets (NPAs). Additional deterioration was noted in the two-wheeler loan portfolio. The overall gross NPA ratio jumped to 3.13% as of March 31, from 2.25% a quarter ago and 1.92% in the same period last year.The March quarter results reflect the fallout from a whistleblower complaint, which led to internal audits and forensic reviews. The bank acknowledged a Rs 1,960 crore hit from wrongly accounted derivative trades and reversed Rs 674 crore of cumulative interest income recognised incorrectly across FY25. A further Rs 172 crore was disclosed as fraud, where employees had falsely reported the sum as fee income in the microfinance business.An additional Rs 595 crore in “unsubstantiated balances” in other assets, flagged by the Internal Audit Department, was set off in January against “other liabilities”. These lapses prompted the resignation of MD & CEO Sumant Kathpalia and Deputy CEO Arun Khurana in April, following allegations of insider trading and leadership failure. The board has since appointed veteran banker Sunil Mehta in a non-executive role, who is overseeing the transition.“It is unfortunate and painful to see such lapses in governance. All the issues have been identified, addressed and disclosed,” Mehta told analysts after the earnings release. “We start FY26 with a clean slate.”Mehta added that the bank is in the final stages of selecting a new CEO and is seeking a candidate with “strong ethical foundations.” He also confirmed that the central government has been informed about the lapses and that accountability will be fixed.Despite the steep losses, the management insisted that the underlying business remains strong. For FY25, net profit dropped by 71% to Rs 2,576 crore from Rs 8,977 crore in FY24, while provisions surged to Rs 7,136 crore from Rs 3,885 crore. Net Interest Income fell to Rs 19,031 crore from Rs 20,616 crore a year earlier.The core net interest income for Q4 declined 43% year-on-year to Rs 3,048 crore as net interest margins narrowed by 200 basis points to 2.25%. The bank’s corporate loan book shrank 16% sequentially to Rs 1.43 lakh crore, which management called a tactical move to retain liquidity buffers. Other income also plunged 72% to Rs 709 crore in the March quarter.Moody’s had recently downgraded the bank’s standalone credit profile to ‘ba2’ from ‘ba1’, citing governance and internal control weaknesses. The global agency also revised its outlook on the bank to negative.As a response to the lapses, the bank has appointed PwC and Grant Thornton to assess the damage and conduct forensic audits. PwC pegged the impact of misreported derivative trades at Rs 1,979 crore as of June 2024. IndusInd said it will continue strengthening its internal controls and oversight mechanisms.Looking ahead, the bank plans to shift focus to secured consumer and small business loans while adopting a cautious stance on corporate lending. Despite the setbacks, deposit levels remained stable though the share of low-cost CASA deposits declined to 33%.The capital adequacy ratio stood at a healthy 16.24%, with core tier-1 capital at 15.10%, which the management said is sufficient to support future growth. IndusInd Bank shares closed 1.39% lower at Rs 771.10 on the BSE on Wednesday.
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