IndusInd Bank Initiates Salary Clawback Amid Fraud Probes

IndusInd Bank has initiated a process to claw back salaries, bonuses, and stock options previously paid to its former Chief Executive Officer (CEO), Sumant Kathpalia, and former Deputy CEO, Arun Khurana.

The move follows an internal review that flagged significant misconduct and accounting misreporting by the two top officials, which led to a substantial financial loss for the private lender.

Sources familiar with the matter indicate that the bank’s board has sought legal counsel to formally fix management responsibility and begin disciplinary proceedings against the former executives.

This decision underscores the board’s commitment to accountability following a period of intense regulatory scrutiny and financial disclosure issues.

The Accounting Anomaly and Executives’ Exit from IndusInd Bank

The genesis of this stern action lies in the bank’s disclosure earlier this year of incorrect accounting on derivatives trades, which prompted a financial hit estimated at $230 million (approximately ₹2,000 crore).

These accounting anomalies spanned multiple years, leading to a record quarterly loss for the bank and a significant erosion of its stock value.

The fallout from the incident was immediate and severe, culminating in the exit of Sumant and Arun in May.

The board has categorized the lapses as a case of “accounting misstatements, regulatory sanction, failure of internal controls and failing to ensure compliance, leading to breach of rules, regulations and damage to the bank.”

The bank’s publicly available Code of Conduct views such actions as constituting “misconduct, necessitating disciplinary action.”

Legal Framework and Scope of the Clawback

The bank’s decision to pursue a clawback is rooted in strong corporate governance principles and the guidelines set by the Reserve Bank of India (RBI).

The RBI’s November 2019 guidelines on the compensation of Key Managerial Personnel (KMPs) mandate that banks establish a clawback mechanism for variable pay to mitigate misconduct risk.

The bank integrates these provisions into the employment contracts of the executives, providing the legal basis for the recovery of compensation in cases of proven misconduct.

The clawback process is expected to target the variable pay, bonuses, and potentially stock options paid to Sumant and Arun, specifically covering the period between December 2023 and March 2025.

For context, former CEO Sumant’s fixed pay in the fiscal year ending March 2025 was ₹7.5 crore, while Arun’s fixed pay stood at ₹5 crore.

Additionally, Sumant’s variable pay for FY23 was ₹6 crore, and the bank deferred a portion of it, which remains unvested.

IndusInd bank is aiming to recover compensation paid during the period when the executives were allegedly aware of or involved in the accounting irregularities.

Multi-Agency Regulatory Scrutiny

The two former officials are currently facing intense scrutiny from multiple regulatory and investigative agencies, extending beyond the internal bank probe.

The Securities and Exchange Board of India (SEBI) previously issued an interim ex-parte order in May, barring Sumant and Arun, along with three other senior officials, from accessing the securities market.

The market regulator is investigating serious allegations of insider trading and misuse of unpublished price-sensitive information (UPSI).

SEBI’s probe revealed that by offloading shares before the accounting discrepancies were made public, the executives allegedly avoided collective losses totaling ₹19.78 crore.

Furthermore, the Economic Offences Wing (EOW) of the Mumbai Police is also investigating the executives in connection with the losses linked to the mis-accounted derivative trades.

IndusInd Bank’s Commitment to Overhaul and Accountability

Under the leadership of the new Managing Director and CEO, Rajiv Anand, IndusInd Bank is undergoing a comprehensive internal accountability exercise and organizational overhaul.

IndusInd bank is actively taking steps to strengthen its governance, controls, and compliance framework.

Rajiv has previously stated that the bank is working to complete this organizational overhaul and tighten financial systems before the new financial year begins on April 1, 2026.

The bank’s move to claw back compensation signals a strong message that it will meet such violations of policy and trust with the highest level of disciplinary action, setting a crucial precedent in the Indian financial landscape.

Note: We are also on WhatsApp, LinkedIn, and YouTube to get the latest news updates. Subscribe to our Channels. WhatsApp– Click Here, YouTube – Click Here, and LinkedIn– Click Here.