What's behind the fiasco at IndusInd Bank?

Reserve Bank of India's reassurance on a festive weekend. As the story plays out amid rating action and a 24% fall in the stock, the declaration of the bank's derivative losses, estimated at more than ₹1,500 crore, has thrown up many questions.

What took the IndusInd management so long to declare the losses?

The dent in its books was caused by a September 2023 RBI communique spelling out how banks should value derivatives. It said all derivatives must be marked to market (MTM), which requires valuing assets and liabilities according to prevailing market price. Even though the circular became effective from April 1, 2024-and there was no requirement to book the losses in the 2023-24 balance-sheet-what held back the bank from reporting the losses in the June, September or December quarters of 2024? While derivative accounting is complex, it couldn't have taken a year for IndusInd and its auditors to sense the jolt and come clean about it.

What caused the losses?
For years, as IndusInd mobilised deposits in dollars (and Yen) and cut deals to hedge the risks arising from exchange rate fluctuations, two departments of the bank followed different accounting rules. One showed upfront profits while the other staggered the losses over a period, said senior bankers and former officials who spoke on condition of anonymity due to the sensitivity of the matter. This generated a net gain. Once the RBI 2023 directive stopped this practice, losses which were deferred, thanks to the hitherto permitted accounting norms, suddenly