Indusind Bank

What Exactly Went Wrong at IndusInd Bank? IndusInd Bank suffered a financial blow as its net worth was reduced by ₹ 1,577 crore. That’s almost 2.5% of its net worth evaporated. Let’s dive in. Bookmark and retweet this thread to revisit it later. 1/ IndusInd Bank, founded in 1994, was the first Indian bank to pioneer internet banking in India, launching “IndusNet” in 1998—way before digital banking was popular. They recently disclosed a financial hit, estimating a ₹1,577 crore reduction in its net worth—about 2.35% as of December 2024. This came up during an internal review of its derivatives portfolio, spotlighting some serious accounting discrepancies. 2/ How Did This Happen? The issue stems from derivatives used to hedge foreign currency deposits and borrowings (like yen deposits or dollar loans) on the bank’s balance sheet. These were managed by the Asset-Liability Management (ALM) desk. Internal trades were booked over 5-7 years with a flawed process. 3/ What Were These Derivatives? IndusInd engaged in interest rate swaps (IRS) and foreign exchange (FX) derivatives to hedge risks tied to foreign currency borrowings, particularly yen-denominated deposits. These deposits, popular among Indian banks for their ultra-low rates (e.g., 0.1–0.5% vs. India’s 6–7% deposit rates), expose banks to FX risk if the yen weakens against the rupee. To mitigate this, IndusInd’s treasury desk swapped fixed-rate yen liabilities into floating-rate rupee equivalents, while the trading desk executed offsetting external contracts with counterparties like global banks (e.g., HSBC, Citi) or domestic players. 4/The Mess These weren’t speculative trades but hedges for balance sheet items. The bank used internal trades for illiquid trades (e.g., 3-5 year yen swaps or 8-10 year dollar borrowings). The problem? The external leg was marked-to-market, while the internal leg used swap cost accounting—creating a mismatch