The Serious Fraud Investigation Office (SFIO) has initiated a formal investigation into private sector lender IndusInd Bank following the discovery of significant accounting irregularities related to its internal derivative trades. The probe, authorized under the Companies Act, 2013, was triggered by a letter dated December 23, 2025, and marks a serious escalation in regulatory scrutiny of the bank's financial practices.
Unpacking the Derivatives Debacle
In a regulatory filing, IndusInd Bank disclosed that the SFIO, which operates under the Ministry of Corporate Affairs (MCA), has sought information after the bank itself flagged several concerning issues on June 2, 2025. The red flags spanned irregularities in internal derivatives, unsubstantiated entries under "other assets/liabilities," and concerns regarding the recognition of microfinance interest and fee income. The bank publicly disclosed this update on December 18, 2025, pledging its full cooperation with the authorities and posting detailed information on its official website.
The core of the problem lies in how the bank accounted for its derivative trades. The irregularities have had a severe financial impact, hitting the Profit & Loss (P&L) account by approximately Rs 1,960 crore as of March 31, 2025. This misaccounting effectively eroded the bank's reported net worth by roughly 2.3% as of December 2024. The mechanism was flawed: notional gains from these trades were incorrectly flowed into the P&L, artificially boosting profits, while corresponding losses were parked as assets. This practice inflated key metrics like Net Interest Income (NII) and severely compromised the quality of the bank's reported earnings.
Management Overhaul and Financial Fallout
The unfolding scandal led to a major shake-up in the bank's leadership. Several members of the senior management stepped down in the wake of the revelations. In response, the board brought in Rajiv Anand from Axis Bank to take the helm and steer the private lender through the crisis.
The bank has now recognized the losses, absorbing the pain in its FY25 earnings. This recognition tipped the bank into a net loss for the fourth quarter (Q4) of FY25 after accounting for one-off write-offs and provisions. The capital and net worth of the bank took a post-tax hit of 2–2.5%, trimming its financial buffers and inevitably affecting its growth appetite and capital pricing strategies.
Market Reaction and Intensified Scrutiny
The disclosure of the derivatives loss sent shockwaves through the market, causing the bank's shares to slide as investors hastily reassessed the credibility of its earnings and the strength of its corporate governance framework. The scrutiny has now sharpened focus on the roles played by the bank's board, its top management, and its audit committees.
The formal SFIO probe intensifies the regulatory pressure on IndusInd Bank, placing it under a microscope for oversight. This move indicates that authorities are treating the matter with utmost seriousness, seeking to unravel the full extent of the lapses and ensure accountability. The outcome of this investigation will be crucial for restoring investor confidence and charting a path forward for the institution.
