MUMBAI: Reserve Bank governor Sanjay Malhotra has said the banking system remains “safe and secure” and described the accounting lapses at IndusInd Bank and the restrictions on New India Cooperative Bank as “episodes” and not “failures.”
The governor was responding to a question from the media on whether there are larger systemic concerns around the accounting lapses at the private sector lender and the failure of the city-based New India Cooperative Bank.
With over 10,000 non-banks and around 1,500 cooperative banks, occasional "episodes" are inevitable and those do not mean the system failed or even the entities concerned failed, the governor said at the customary post-policy press meet here Wednesday when the MPC headed by him cut the key interest rates for the second time in a row, taking the cumulative rate reductions 50 bps to 6%.
"These are not even failures, they’re episodes. In such a large system with so many entities these things will happen again," Malhotra said, adding “the banking system remains safe, secure, and robust at a systemic level.”
During the past eight to nine years, about 70 of the 1,500 cooperative banks have faced issues, which is a small fraction, the governor said.
An investigation is underway and based on its findings, appropriate action will be taken and those responsible identified, deputy governor Swaminathan Janakiraman said in response to a query about the management being allowed to continue at IndusInd Bank.
It may be recalled that on March 10, IndusInd Bank had reported accounting discrepancy in its forex derivatives portfolio and admitted—after being asked by the RBI to do so—that the accounting problem in this particular book was persisting for the past several years. It also said the impact of this on the bank’s net worth would be around 2.35% of the net worth of Rs 64,000 crore as of December 2024.
Though the bank did not quantify the loss, it has been assumed that the red hole will be worth around Rs 2,100 crore. The RBI asked the bank to book the losses in the March quarter itself and also appoint an external agency to do an audit, towards which the Hinduja group owned bank appointed PwC to do the audit and also appointed another agency for a forensic audit.
The comments come amid growing scrutiny of the bank, though the RBI has said such isolated incidents should not overshadow the resilience of the banking system.
The New India Cooperative Bank crisis erupted in February 2025, with a Rs 122-crore embezzlement issue leading to arrests, property attachments, and severe restrictions by the RBI including curbs on withdrawals by account holders.
“Our approach is to minimise the frequency and impact of such events through a combination of regulatory oversight, supervision, and collaboration with banks’ internal mechanisms," said Malhotra.
"We have various tools, regulations, supervision, and banks themselves have multiple layers: their business units, compliance teams, and audits. We all need to work together to continuously improve the system," he added.
