Earlier this year, the corporate affairs ministry ordered an SFIO probe into the affairs of IndusInd Bank, citing public interest and serious accounting discrepancies flagged by statutory auditors and forensic reports.The SFIO, the investigation arm of the ministry, handles complex cases involving suspected fraud, mismanagement or large-scale financial irregularities impacting public interest.
Gobind Jain declined to comment while Kathpalia and Khurana did not immediately respond to ET’s queries.
The central agency’s action comes at a time when the Mumbai Police Economic Offences Wing (EOW) is understood to be preparing to close its preliminary enquiry into the matter. According to people in the know, the EOW found no evidence of fund siphoning or diversion during its initial assessment, which has been underway since August last year.
“While auditors and forensic reviews have pointed to accounting discrepancies, the absence of clear fund diversion may indicate lapses in reporting, classification or internal controls rather than outright fraud,” a government official told ET on condition of anonymity. “The SFIO, on the other hand, is probing the bank’s erstwhile personnel over corporate governance issues and accounting discrepancies, and whether these constitute fraud under Section 447 of the Companies Act.”Scope of SFIO ProbeThe SFIO will examine observations and findings recorded in ADT-4 forms, forensic monitoring reports, forensic audit reports, internal and inspection audit reports, and findings of other agencies under the Companies Act. Form ADT-4 is a statutory report filed by auditors with the Centre to report suspected fraud of at least ₹1 crore committed by company executives or employees.
The probe will also look into alleged manipulation of books of account, creation of fictitious accounts, misclassification of assets and the overall impact on the bank’s financials. Transactions relating to assets and liabilities, related-party transactions, loans and advances, and investments will also come under scrutiny. The agency has been mandated to identify any diversion or routing of funds and trace potential beneficiaries, if any.
“The SFIO probe is expected to dig deeper into the bank’s books, governance practices and decision-making processes during the tenure of the former top executives. The outcome could have significant implications not only for those under the scanner but also for regulatory oversight,” said the official.
EOW Finds No Criminality, Seeks RBI View
Before closing its preliminary enquiry, the EOW has sought clarifications from the Reserve Bank of India (RBI) regarding prior regulatory awareness of the issues, as well as accounting and hedging practices, according to people familiar with the matter. The RBI’s reply is still awaited, they added.
In March last year, the Hinduja Group-promoted lender disclosed a ₹1,979-crore lapse in its derivatives portfolio, along with misstatements including ₹674 crore booked as microfinance income, ₹595 crore reflected as unsubstantiated balances under other assets and ₹172.6 crore misclassified as fee income.
The bank said these issues could have a 2.35% impact on its net worth as of December 2024 but maintained that its capital position and profitability were adequate to absorb the one-time hit.
Following the RBI’s directions, PwC reviewed derivative transactions between April 2023 and June 2024, while Grant Thornton conducted a forensic audit covering 2015-16 to 2023-24. The latter’s report is understood to have named around 25 individuals linked to the lapses.
The EOW’s enquiry was initiated after the bank itself flagged the discrepancies.