IndusInd Accounting Lapse Aftermath: Ex-CEO Kathpalia, His Deputy Likely to Face Penalty

IndusInd Bank has reportedly sought legal opinion on taking action against its former CEO, Sumant Kathpalia, and former Deputy CEO, Arun Khurana, including the possible clawback of bonuses paid to them over the past two years.

The move comes just months after the lender appointed a new CEO, Rajiv Anand, in the wake of derivative accounting lapses that were later called potential “fraud”. Both executives resigned following the disclosure of the lapses, which led to losses in Q1 FY25 and a sharp decline in the bank’s stock price.

According to a report by The Economic Times (ET), the bank’s board is now considering recovering financial incentives paid to Kathpalia and Khurana, in line with Reserve Bank of India (RBI) regulations.

RBI’s November 2019 guidelines on the compensation of key managerial personnel require banks to implement a clawback mechanism for variable pay to mitigate misconduct risks and ensure compliance with regulatory norms. These clauses, included in senior executives’ employment contracts, empower banks to recover bonuses in cases of proven misconduct or policy violations.

The ET report further noted that in FY23, Sumant Kathpalia received ₹6 crore in variable pay, split into 30% cash and 70% share-linked instruments. Half of the cash component was paid immediately, with the balance deferred over three years, while the entire non-cash portion vested over three years. In FY24, Kathpalia’s fixed pay stood at ₹7.5 crore, while Khurana earned ₹5 crore. During FY25, Kathpalia exercised 2.48 lakh stock options, and Khurana exercised 5,000, as per the bank’s filings.

In his first earnings call after taking over as CEO, Rajiv Anand said on 18 October, “Based on all the investigations that have been done, staff accountability has been established, and staff action has been taken. Some people have been asked to go, and some have been docked.”

He added, “That process has largely been completed. Some aspects of the probe have moved into the legal domain with law enforcement agencies, and that process will continue. The bank is fully cooperating with law enforcement agencies as we go forward.”

So far, as part of the ongoing investigation, the Securities and Exchange Board of India (Sebi) has barred several executives, including former CEO Kathpalia and former Deputy CEO Khurana, from trading in IndusInd Bank shares after they were found to have accessed information about the accounting lapses. Sebi’s probe into insider trading and misuse of unpublished price-sensitive information (UPSI) is still ongoing.

Additionally, the Economic Offences Wing (EoW) of the Mumbai Police is investigating several current and former senior executives of the bank in connection with losses worth ₹2,000 crore linked to misaccounted internal derivative trades.