IndusInd Bank Treasury Scandal Overview
The treasury's back office operates silently, adhering to standardized processes. It primarily involves recording transactions and passing entries of deals executed by other colleagues. Typically, employees follow manuals without questioning potential flaws, unless a major malpractice like that of Nick Leeson occurs.
Bank Treasury Structure
- Front Office: Creates risk to generate profits.
- Mid Office: Monitors risks and reports breaches to the treasurer and chief risk officer.
- Back Office: Responsible for recording and reconciling transactions.
The treasury functions almost like a separate entity within the bank, and while some are aware of unethical practices, many employees follow orders without question.
Investigation and Losses
Auditors are analyzing the bank's books, communications, and financial practices to uncover the extent of the losses and systemic flaws. The bank’s derivative losses, estimated at ₹1,500 crore, have puzzled insiders and shareholders alike.
Role of PwC and GT
PwC was commissioned for a 'review', not an 'audit', which has delayed disclosure to the stock exchange. As PwC has yet to report since October, Grant Thornton (GT) is tasked with a thorough audit to meet deadlines for the announcement of Q4 results. Statutory auditors require GT’s findings before they can proceed.
Stakeholder Reactions
- IndusInd Bank: Keen on resolving the issue quickly to regain trust.
- RBI: Wishes to avoid scrutiny over oversight failures.
- Auditors: Desire leniency for their overlooked errors.
- Government: Keen to avoid another private bank scandal post-Yes Bank incident.
Conclusion and Future Actions
The board of directors and associated committees face pressure to act decisively to restore confidence among investors and depositors. While punitive measures may be implemented, it could lead to unintended consequences affecting various stakeholders.
