By Siddhi Nayak, Nandan Mandayam and Nishit Navin
(Reuters) -Indian private lender IndusInd Bank said on Tuesday CEO Sumant Kathpalia has resigned with immediate effect, marking a management shakeup following a derivatives accounting lapse that has hit the bank’s net worth.
Kathpalia is the second top executive to resign in two days after his deputy Arun Khurana exited on Monday.
Meanwhile, the Reserve Bank of India late on Tuesday approved the formation of an executive committee to take charge in the interim, overseen by the lender’s consumer banking chief Soumitra Sen and Chief Administrative Officer Anil Rao.
The board chairman will take charge of the oversight committee, the lender disclosed in a filing.
A management transition and a wider reshuffle is expected in the bank over the next few days and weeks, four sources aware of the development told Reuters earlier on Tuesday.
RBI urged Kathpalia and Khurana to step down following the accounting lapses, Reuters had reported in March.
The country’s fifth-largest private lender had in March disclosed accounting discrepancies in its derivatives portfolio, the impact of which roughly equated to an entire quarter’s profit. A push for profits and lax controls led to the incorrect accounting practices that lasted for years.
The company’s shares have dropped 7% since the announcement.
“I undertake moral responsibility, given the various acts of commission/omission that have been brought to my notice,” Kathpalia said in his resignation letter, as per a stock exchange notification.
Kathpalia has been a banker for nearly three decades and had been part of the bank for over 12 years in various capacities.
He was appointed CEO in March 2020 and got a one-year extension from the central bank just before the accounting discrepancies were revealed.
The lender, which has a balance sheet of $63 billion, has sought approval from India’s central bank to set up a committee of executives who will take charge of the CEO’s responsibilities until a replacement is appointed.
In India, all bank appointments are cleared by the country’s central bank and regulator, the Reserve Bank of India.
IndusInd Bank is promoted by the U.K.-based Hinduja family, which holds 15.8% in the bank. However, due to the existing regulations, the family does not have a representative on the board. A proposal by the family to raise its stake in the bank to 26% is pending with the central bank.
DEPOSITORS TO BE PROTECTED
IndusInd Bank’s depositors will be protected, two sources aware of the country’s central bank’s thinking told Reuters.
“Depositors have no reason to worry… There will be no run on the bank,” one of the sources said.
The bank reported a two percentage point decline in the growth of its term deposits and low-cost deposits in the March quarter, following the discrepancies.
Sources previously told that further announcements on the bank’s management are expected in the next 24 hours.
The RBI and IndusInd Bank did not immediately respond to Reuters’ request for comment.
“Getting a best fit leader for the bank is not done overnight and until a crack leadership team with a strong reputation is not put in place, business development will slow down,” said Vinit Bolinjkar, head of equity research at Ventura Securities.
“This will impact growth, profitability and efficiency.”
(Reporting by Nandan Mandayam and Nishit Navin in Bengaluru, Additional reporting by Urvi Dugar; Editing by Leroy Leo)
