MUMBAI: More skeletons are tumbling out of the messy cupboards of Indusind Bank, with the two top-dogs of the troubled lender—the chief executive Sumant Kathpalia and the deputy chief executive Arun Khurana—net-selling shares worth Rs 157 crore during 2023 and 2024. During this period, they had also bought shares worth Rs 59 crore.
Both these executives are beneficiaries of the employees stock option scheme (Esops) and the both of them sold and bought back the shares of the bank under this option.
It can be recalled that the fifth largest private sector lender has been in trouble since this Monday when it had declared that it did not make provisions for its losses—running into at least Rs 2,000 crore according to analysts—or 2.35% of its networth, which as of December 2024 had stood at Rs 64,000 crore—for its forex derivatives book. The Hinduja brothers’-owned bank said so after the Reserve Bank has asked it do so.
According to insider-trading data from the BSE, Kathpalia, whose bid to get a three-year third term was scuttled by the Reserve Bank by allowing only a one-year term over the past weekend, sold nearly 9,50,000 shares valued at Rs 134 crore between May 24, 2023, and June 25, 2024, while buying 3,96,000 shares worth Rs 34 crore, thus making a net profit of Rs 100 crore.
Similarly, Khurana had sold 5,50,000 shares from his Esop basket for Rs 82 crore during 2023-24 and had bought 2,38,000 shares worth Rs 25 crore, thus making a clean profit of Rs 57 crore from the bank, show the insider trading data from the BSE.
The bank did not respond to queries from the TNIE.
Earlier this week, the bank had disclosed that it had discovered discrepancies in its derivatives portfolio, potentially resulting in a Rs 2,000 crore hole in its balance sheet, with the entire provisioning hit to be taken in the March quarter.
The admission led to a massive 27% erosion in the value of its stocks on Tuesday, wiping off as much as Rs 19,000 crore from its market capitalisation, which even sunk lower than that of Yes Bank’s around Rs 51,000 crore. However, after chairman Ashok Hinduja assured of capital infusion if needed and Kathpalia’s assertion that the bank would remain profitable in the March quarter, the stock had clawed back 4.4% of the losses. But on Thursday, it was still trading in the red with a 50 bps loss at 1400 hrs on the BSE.
The discrepancies in booking losses were identified between September and October 2024, Kathpalia had explained during an analyst call later in the day on Monday.
The fiasco at Indusind had the RBI reportedly asking all banks with large forex derivatives books to provide details such as the size of the exposure, hedging and also of their forex deposits.
“The RBI is examining the derivatives exposures of some private and state-run banks which have large forex derivatives books,” a private sector banker whose bank has been asked to provide details of their exposure told TNIE on Wednesday, asking not be identified.
The central bank has asked the lenders to provide the details of their overseas borrowings, forex deposits as well as their forex hedge positions, the banker cited above said, adding “as of now there is no reason to believe the issue is systemwide. But if the RBI finds any discrepancies, it may ask lenders to go in for an external audit.”
“Now, the RBI wants to make sure that banks with heavy forex liabilities are not exposed to a situation like that of Indusind wherein any loss from internal hedges booked previously are not been accounted for later," the banker explained.
Under the revised Master Direction of the RBI on ‘Classification, valuation and operation of investment portfolio of commercial banks (directions), 2023’ which came into effect from April 1, 2024, Indusind found it difficult to make the provisions or book the losses, but asked for more time from the regulator. While other banks complied by the June 2024 quarter, Indusind asked for time till September but did not comply. This has forced RBI to first provide for the losses and then inform its investors, which it did this Monday, the banker cited above explained.
According to the master direction, banks have to categorise their derivatives portfolio into three fair value hierarchies—level 1, level 2, and level 3 and disclose it in their financial statements.
On the currency derivative front, the central bank, through a January 5, 2024 circular, said investors must ensure a valid underlying contracted exposure, which has not been hedged using any other derivative contract and that they should be in a position to establish the same if required.