New Delhi: An internal probe by IndusInd Bank on a fraudulent Asset-Liability Committee (ALCO) meeting recorded in October 2024 has come under the scanner for allegedly back-dating treasury derivative trades and throwing mid-level executives of the bank under the bus, with an apparent intent to let senior executives off the hook. The Hinduja-promoted IndusInd Bank recorded a fraudulent ALCO meeting, purportedly held physically and through video conference at 12 pm on October 7, 2024 in the bank’s board room at One World Centre, Mumbai. The minutes of this ALCO meeting was signed by Sumant Kathpalia, the then chief executive officer (CEO) of the bank. ALCO meetings are held to manage balance sheets, interest rate risks, liquidity and market risks, financial stability and regulatory compliance. The ALCO committees in Indian banks are normally headed by the CEO or the executive director of the bank. The October 7, 2024 ALCO meeting at the IndusInd Bank was apparently fraudulently created and then recorded to effectively back date certain derivative transactions to increase net interest income by reducing interest cost (swap cost) and balance it out by reducing other incomes for the financial quarter that ended on December 31, 2024.Although the change in the accounting treatment did not affect the overall net profit, the backdated reclassification of six trades from hedge accounting to mark-to-market resulted in Rs 153 crore increase to the net interest income, with a corresponding decline in the other income for the third quarter results. The decision to make these changes in accounting fraudulently was apparently done by the senior management to report a lower reduction in the bank’s net interest margin (NIM) – a metric that stock market analysts closely monitor. The manipulation in balance sheets enabled IndusInd Bank to disclose a net interest income of Rs 5,228 crore and a NIM of 3.93% in the third quarter of FY2025. The NIM in the second quarter of FY2025 was 4.08% and 4.29% in the third quarter of FY2024. “If the bank had not made the above-mentioned change (in the October 2024 ALCO meeting), the NIM for the third quarter of FY2025 would have been around 3.83%. It is a mystery as to why the senior management authorised such a fraudulent transaction just to increase the NIM by 10 basis points,” a source who has been following the probe claimed. He added that the ALCO meeting never happened, and was recorded only to justify the manipulation.“As it was not possible to retrospectively change the accounting treatment, the bank decided to fraudulently record that an ALCO meeting had taken place on October 7, 2024, which allowed the accounting treatment to be changed for treasury transactions prospectively. Thus this practice was normalised for FY2025’s third quarter results” the source said. When the malpractice came to light, IndusInd bank suspended and terminated some of the mid-level executives for being aware of the fraudulent October 7, 2024 ALCO meeting. The charge sheet to them confirmed the fraudulent changes and revealed important details.One charge sheet to a mid-level executive stated: “By virtue of ALCO Committee approval dated 7 October 2024, 6 trades IDs (54472681, 54475201, 54495301, 54496097, 54508488 and 54508866), were reclassified from hedge accounting to MTM accounting. The reclassification of these 6 deals from hedge accounting to MTM resulted in net impact of INR 153 crore on the Net Interest Income by a reduction of the Interest Expense (Swap cost) with a corresponding impact on Other Income. However, multiple communications indicated that the minutes and the presentation desk for ALCO Committee meeting conducted on 7 October 2024 were prepared on a back dated basis. It appears that the TBO [Treasury Back Office] team requested for ALCO committee approval for accounting reclassification on trade ids from accrual accounting basis to MTM basis. Such ALCO minutes were signed by Sumant Kathpalia as well.”It went on to add: “The relevant details indicating the same is provided below:As per the minutes of the ALCO meeting held on 28 October 2024, the minutes of the previous meeting which was acknowledged was held on 26 September 2024. No reference of meetings held on 7 October 2024 was found in the minutes of the meetings.Meeting invites were identified only for meetings held on 26 September 2024 and 28 October 2024. Meeting invite for 7 October 2024 was not found in the electronically stored information of Sumant [Kathpalia] and Arun [Khurana] amongst other employees.”Further investigation showed that the decision to backdate the fictitious ALCO meeting appears to have been taken during end of January, 2025, as The Wire could glean from an email dated January 30, 2025 from Amit Sareen, Head-Balance Sheet Management seeking approval for changing the accounting treatment for the same six derivative trades from Arun Khurana, Executive Director and Deputy CEO. A subsequent charge sheet to one of the suspended staff members also mentioned the backdating the modification of the same six swap trades. On January 31, 2025, when the bank announced its third quarter FY2025 results, the accounting change for the six derivative trades had been implemented. Some of the other senior executives, apart from the CEO and deputy CEO, who were shown to be present at the fraudulent October 7, 2024 meeting were Sanjeev Anand (on Microsoft Teams), Head-Corporate Banking, Gobind Jain (resigned on 17 January 2025), Chief Financial Officer, Vivek Bajpeyi (on Microsoft Teams), Chief Risk Officer, Soumitra Sen, Head-Retail Banking and Siddharth Banerjee, Head Global Market.“Once the approval was granted the implementation of the change in the accounting treatment of the six trades was undertaken by operations, which was headed by Anil Rao, Chief Administrative Officer (Operations). Strangely, the operation team did not seem to object why they were changing the accounting after 31 December i.e. after the quarter-end, and why, more than three months after the 7 October 2024 meeting, when the accounting change was implemented,” the source told The Wire. However, not all the members who seemed to have attended the purported ALCO meeting held on October 7, 2024, have been charged for this fraudulent act and IndusInd Bank has selected a few employees to demonstrate staff accountability. None of the core executive team (two levels below the CEO) members who played a crucial role along with the then CEO in taking this decision and subsequently its implementation – Vivek Bajpeyi (chief risk officer), Siddharth Banerjee (head global markets group), Amit Sareen (head asset liability management) and Anil Rao (chief administrative officer) – were suspended for the very ground for which some of the other middle management employees were suspended and later terminated.The Wire had sent a detailed questionnaire about various aspects of the fraudulent meeting, while also asking about the apparent selective targeting of mid-level executives in the probe. Responding to the questions, IndusInd Bank told The Wire:“Following the disclosures in March 2025, the Bank has thoroughly investigated all matters through independent reputed external consultants and internally, as required. After careful evaluation of the findings, the Bank has reported the accounting matters as fraud to the Reserve Bank of India and also filed complaints with law enforcement agencies as per regulatory obligations of the Bank, subsequently initiating the staff accountability process based on the findings.”“The Bank is fully cooperating with the agencies and continues to provide information and assistance, as requested. While the law enforcement agencies are investigating the matters based on the Bank’s complaints, it would not be appropriate for the Bank to respond to your report,” it further said.