Bank CEO Quits Over $230 Million Accounting Lapse

What started as just another quarter in India’s booming banking sector turned into a crisis that dropped jaws from Wall Street to Dalal Street. The fifth-largest private lender in India found itself in the spotlight for all the wrong reasons after an accounting snafu torched $230 million from its books and set off a leadership exodus. But this isn’t just a story about a CEO calling it quits, it’s a masterclass in how internal lapses, if left unchecked, can snowball into full-blown financial earthquakes. Let’s break down the mess—past, present, and future.

The Missteps That Led to the Lapse

This wasn’t a one-and-done blunder. The roots of the problem stretch back nearly six years, to when the bank began misaccounting internal derivative trades between its asset-liability management and treasury desks. Here’s the kicker: while external trades were marked to market, internal ones were booked as accrual, leading to notional profits being counted as real income. Translation? They were logging imaginary gains while postponing real losses. That kind of move might make the balance sheet look fly in the short term, but in the real world, it's like putting a Band-Aid on a broken leg.

What finally blew the lid off? A regulatory push from the Reserve Bank of India (RBI) in 2023 forced banks to value derivatives more stringently. That led to an internal review in late 2024. By April 2025, the full scale of the damage was a $230 million (₹1,960 crore) hit to the P&L, nearly wiping out an entire quarter’s profit

Gone in a Flash

Sumant Kathpalia, who’d been steering the ship since 2020, resigned effective April 29, 2025, citing “moral responsibility.” His deputy, Arun Khurana, who had direct oversight of the treasury division, resigned just a day earlier. These weren’t graceful exits; they were nudged along by the RBI, which had lost patience. Adding fuel to the fire, the bank had to scramble to set up an interim executive committee, requiring RBI’s green light. According to Section 10B(9) of India’s Banking Regulation Act, such committees are rare but legally viable when leadership is MIA. And the leadership turmoil isn’t over yet. Sources have hinted at more shakeups and reassignments among the top brass over the coming weeks. The situation’s hotter than the wings on Hot Ones, and investors are watching with sweat on their brows.

And This Was a Doozy

The bank’s stock nosedived nearly 8% after the initial March disclosure and has been under pressure ever since. At one point, it dropped from ₹901.95 to ₹606 intraday, a brutal 32% plunge. Ratings downgrades followed quickly, with nearly a third of analysts shifting from “buy” to “hold.” The sentiment? Until this house is in order, nobody’s banking on a bounce-back. Despite some recovery after the external audit findings aligned with initial disclosures, investor confidence is still shaky. And who can blame them? When your bank’s numbers don’t add up, trust takes a serious hit.

Regulators are all over this. The RBI is closely monitoring the clean-up operation and has made it clear: get your act together. Internally, the bank has ceased all internal derivative transactions as of April 1, 2024, and the board is reportedly realigning roles and fixing accountability. Meanwhile, the Hinduja family, the bank’s promoters, have offered to inject capital if needed, a move signaling their intent to stabilize the ship. But make no mistake: this isn’t just about plugging a hole. It’s about proving to stakeholders that the bank can evolve into a better, more transparent institution.

Crystal Ball Check

The road ahead isn’t going to be a joyride. The interim leadership has its hands full with restoring market confidence, tightening internal controls, and keeping regulators on its side. And then there’s the elephant in the room: appointing a credible, capable CEO who can own the narrative and rebuild the brand. Analysts are predicting a cautious growth strategy moving forward. Risk management and compliance will take center stage—because frankly, nobody wants to go through this circus again. If the new leadership can show grit, commit to radical transparency, and execute a clean turnaround, there’s hope. But in this high-stakes game of banking, reputation is everything, and regaining it might take more than just time. It’ll take trust.

Bottom Line

This whole debacle is more than just a $230 million loss or a couple of top brass walking out the door. It’s a cautionary tale for the entire financial industry. When internal oversight breaks down and the race for profits blinds decision-makers, the consequences are far-reaching. For investors, this is your reminder to scrutinize not just numbers, but governance. For banks? It's time to get your risk frameworks tighter than a drum. Because in this business, there’s no margin for error, literally and figuratively. Let’s hope this mess isn’t swept under the rug. Let’s hope it sparks real change. Like what you read? Subscribe for more stories on financial leadership, market shakeups, and the future of global banking.