SFIO Launches Probe into IndusInd Bank over Accounting Discrepancies

IndusInd Bank indicated this week that the Serious Fraud Investigation Office (SFIO) has initiated an inquiry into its affairs in accordance with the applicable provisions of the Companies Act (2013) under section 212 for the purpose of gathering relevant information.

This investigation stems from a request by the Ministry of Corporate Affairs, made at the suggestion of statutory auditors and based on the findings of forensic investigations, which raise concerns about accounting irregularities that may affect public interest.

The lender has confirmed its intention to cooperate fully with the relevant authorities in response to a letter received from SFIO dated December 23, 2025. What caused the escalation of these events, and how will it affect the Bank's operations?

How Did Accounting Issues Surface?

In March 2025, the Bank undertook an internal review and discovered material errors in its derivatives portfolio for the period from FY16 to FY24. The most significant issue was that the accounting treatment did not adhere to applicable accounting principles, resulting in notional income being incorrectly recognised as revenue in the profit and loss account. This notional income was carried forward for multiple years via recorded asset balances. In response, the Bank initiated the appointment of third-party experts to assess the financial impact, identify the root causes, and recommend corrective measures.

In the past week, meetings have been held between representatives of the Bank and the SFIO to discuss the issue. A formal request for further information regarding the issue was subsequently received from the SFIO. The lender notified the relevant stock exchanges of their decision to act in a transparent manner in response to regulatory oversight relative to this issue.

The nature of such an inquiry is that it investigates the possibility of systemic problems with respect to the accuracy of an entity's financial reporting and the level of confidence its customers and stakeholders have in it.

Derivatives and Microfinance Irregularities

A miscalculation resulting from inaccurate accounting methods used by IndusInd when recording derivative transactions has led to the write-off of ₹1,959.98 crore of cumulative notional profits in FY25. IndusInd subsequently made a further reversal of ₹595 crore in unrecorded balances between its other assets and liabilities.

A review of the microfinance portfolio showed that IndusInd had erroneously accounted for ₹673.82 crore as interest income and ₹172.58 crore as fee income. The subsequent reversal of these amounts led to a negative impact of ₹422.56 crore in Q4 FY25. Classification of certain microfinance loans resulted in an overstatement of accrued interest. Accordingly, after corrective reclassification, the bank made an additional provision of ₹1,791 crore at the 95% level. This provisioning, along with the reversal of previously accrued interest income, resulted in an overall adverse impact of ₹1,969 crore on the profit and loss account as of March 31, 2025.

All of these corrections contributed to an overall net loss of ₹2,329 crore for Q4 FY25.

Regulatory Response and Bank Cooperation

Section 212 of the SFIO permits a more detailed investigation into the activities of IndusInd, which could potentially reveal additional issues during the course of the investigation. Furthermore, the MCA has ordered an inquiry into IndusInd based on the concerns raised by the auditors and the public interest attached to the material discrepancies surrounding IndusInd, which relate to a publicly traded company. IndusInd has reaffirmed its commitment to supporting law enforcement agencies, having taken corrective action before the MCA order.

After external forensic evaluations of the bank's internal findings, all corrective actions will be completed before the finalisation of the investigation. During the course of the SFIO's review, the bank's public disclosures remained in compliance with the listing requirements.

Investors in the marketplace are monitoring the impact of the investigative process on IndusInd's corporate governance, provisioning requirements, and management accountability.

Broader Implications for the Banking Sector

The scrutiny of SFIO by IndusInd indicates that regulatory authorities have increased their vigilance toward accounting practices within the banking sector, which are exposed to significant levels of stress.

Investors will be evaluating how these changes will affect the bank's capital adequacy and rating metrics and what impact it will have on the overall growth trajectory of the bank. Additionally, positive cooperation from all parties involved in the investigation should lead to a quicker resolution of the matter, restoring confidence in the bank as a viable investment option going forward.

As the SFIO investigation progresses into the ₹1,959 crore write-off of derivatives and ₹1,791 crore provision for microfinance lending at IndusInd Bank pursuant to section 212 of the Companies Act 2013, the key question that will be posed to all stakeholders is how much of the actions to correct will affect the trust stakeholders have in the financial integrity of IndusInd Bank post investigation completion?

References:

Business Standard
MSN
Economic Times