IndusInd Bank shares were down by 1.7 percent on Thursday and we could see further decline in the stock. The stock has declined 26 percent over the last five trading sessions and many investors would consider buying at current levels. However, it would be better to enter the stock only after further clarity emerges on the Rs 2,100 crore accounting discrepancy. Meanwhile, rating agency CLSA has reduced the price target for IndusInd Bank by 30 percent.

The Institute of Chartered Accountants of India (ICAI) is likely to review the financial statements of the private sector lender through its Financial Reporting Review Board (FRRB). The issue, first identified in September-October 2024, was reported to the Reserve Bank of India (RBI) in March. While an external audit is currently underway, the ICAI's proactive review underscores the regulatory focus on financial transparency and compliance.

IndusInd Bank’s Rs 2,100 Crore Accounting Discrepancy

Nature of the Accounting Issue
IndusInd Bank disclosed the discrepancy in its derivatives portfolio on March 10, 2025.
The accounting irregularity is expected to impact 2.35% of the bank’s net worth as of December 2024.
Analysts estimate the total discrepancy to be around Rs 2,100 crore in absolute terms.
Timeline of Events
The accounting lapse was initially detected in September-October 2024.
A preliminary update was provided to the RBI last week.
The final assessment will be completed in April following a review by an external audit agency.

ICAI’s Financial Reporting Review Board (FRRB) Involvement

Objective of the Review
The Financial Reporting Review Board (FRRB) of ICAI may conduct a detailed assessment of IndusInd Bank’s financial statements.
The review will evaluate compliance with:
Accounting Standards (AS)
Standards on Auditing (SA)
Schedule II and III of the Companies Act, 2013
RBI’s Master Circulars and Directions
ICAI’s Proactive Approach
ICAI President Charanjot Singh Nanda stated that FRRB may review IndusInd Bank's financial statements as a proactive measure.
The FRRB routinely evaluates financial disclosures of companies to ensure compliance with Indian accounting and auditing standards.

Potential Implications for IndusInd Bank

Regulatory and Market Impact
Increased regulatory scrutiny: The RBI will likely closely monitor IndusInd Bank's accounting practices.
Investor sentiment: The stock price of IndusInd Bank may face volatility in response to the ongoing review.
Auditor and management accountability: The role of the bank’s auditors and financial officers will come under greater scrutiny.
Possible Corrective Actions
The bank may need to restate financials if material discrepancies are confirmed.
Stronger internal controls may be required to prevent similar accounting lapses in the future.
Regulatory penalties could be imposed if non-compliance with accounting standards is established.

Final Thoughts: A Test for Financial Transparency

IndusInd Bank's accounting discrepancy has raised concerns about internal financial controls and risk management in banking operations. The ICAI's potential review is a critical step in ensuring adherence to financial reporting standards. As the final audit report is expected in April, investors and regulators alike will closely watch how the bank addresses this financial oversight.