Hinduja's Reliance Capital Acquisition at Risk? IndusInd Bank’s Accounting Woes Spark Concerns

Ashok Hinduja-led IndusInd International Holdings Ltd (IIHL) was all set to acquire Anil Ambani's bankrupt Reliance Capital and has already paid Rs 5,600 crore to the financial services firm's creditors. However, accounting discrepancies at IndusInd Bank are now threatening to derail IIHL's plan.

IndusInd International Holdings is financing the Rs 9,861 crore takeover of Reliance Capital with Rs 7,300 crore in debt and the remainder as equity. According to an Economic Times report, while the company raised Rs 3,000 crore via a subsidiary in September, it was supposed to raise the remaining Rs 4,300 crore this week.

However, the accounting lapses have forced IIHL to postpone the fundraiser by a week, as per the report. The Mauritius-based company had initially scheduled the fundraiser for March 13, but the ET report claimed that some investors have sought more time to reassess IIHL's credit risk.

The company has dismissed the report, saying that the transaction was extended by seven days due to upcoming holidays in both Mauritius and India. IIHL claims that this part of the funding is irrevocably underwritten and that "there is no scope for any further due diligence to be undertaken by any lender or investor.”

The Hinduja Group-led holdings company has reportedly mandated Barclays and 360 One to syndicate the debt. The report noted that Bank of America, Allianz Private Credit Fund, ICICI Prudential AMC Private Credit, Aditya Birla Finance, and Varde Partners are among the investors looking to participate in this second tranche of funding.

According to the report, the NCLT Mumbai, in a hearing on March 12, directed IIHL to complete the acquisition of Reliance Capital by March 22 and scheduled the next hearing for March 25. Reliance Capital was admitted to insolvency in 2021 after the RBI superseded its board following a loan default.

IndusInd Bank's Accounting Saga

On March 10, IndusInd Bank announced that it had discovered discrepancies in its derivative trades accounting, leading to an estimated 2.35% decline in its net worth as of December 2024. This translates to a post-tax impact of Rs 1,577 crore or Rs 2,100 crore pre-tax.

According to Elara Capital, the issue stemmed from the bank's internal hedging of forex borrowers through derivative contracts. While the external trades were marked to market, impacting the bank's profit and loss, the internal trades were accounted for using swap valuation, which did not reflect market movements. This mismatch temporarily inflated reported income and suppressed actual trading losses.

The bank has appointed an external agency to review and validate its internal findings. Despite this setback, IndusInd Bank says its profitability and capital adequacy remain strong enough to absorb this one-time impact.