IndusInd hasn’t asked for more capital, future actions hinge on external audit report: Ashok Hinduja

Mumbai: Ashok Hinduja, chairman of the promoter company of IndusInd Bank Ltd, has said that the private lender does not require capital and all measures to bolster the credibility of the bank after it disclosed accounting discrepancies will depend on PwC’s external audit report.

“Once the report comes, it will go the board and it will review it; they have their various committees,” Hinduja, chairman at IndusInd International Holdings Ltd, said on the sidelines of an event. “Then they will take a call on who is the person responsible for the (issue over the) last so many years—whether it was one person, two persons or whether it was an error, we don’t know.”

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The private bank on March 10 announced accounting discrepancies in its currency derivatives portfolio to the tune of 2.35% of the bank’s net worth, amounting to a hit of around ₹1,530 crore. These had been going on for the past 5-7 years. The disclosures came weeks after chief financial officer Gobind Jain resigned from the bank in January, and days after the Reserve Bank of India (RBI) approved the reappointment of chief executive Sumat Kathpalia for only one year instead of three.

“As a promoter, I can’t say why he (CFO) left, or why the regulator has given him (CEO) one year. I have no prerogative to talk on that subject. Whatever regulator has thought right, they have done. Whatever management has thought, they have done,” he said, adding that the board will be more privy to these decisions and stakeholders should “wait and watch” till there is more clarity on the matter.

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On whether the promoter has started considering more candidates as part of succession planning for the CEO’s position, Hinduja said that this, too, is the board’s job and the promoters will not be party to it.

Asked why the promoter group has no representatives on the board of the bank, Hinduja said because the promoter group is a family-run business; the IIHL Group, as a policy, has no family member to maintain an arm’s length difference from the day-to-day workings.

“This (is a) business of lending and borrowing, and confidentiality of so many clients. Nobody would like any other corporate house to know their balance sheet,” he said.

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As such, IndusInd Bank remains comfortable in terms of capital adequacy despite the recent derivatives discrepancies and has so far not sought incremental funds from the promoter, Hinduja said, adding that the promoter is ready to infuse capital as and when required.

As of December end, IndusInd International Holdings owned a 12.4% stake in the bank, and IndusInd Ltd held 3.88%, according to exchange filings. In April 2023, the RBI had given its in-principle approval to the promoters to increase their shareholding.

Hinduja added that IIHL continues to await the final regulatory approval to increase its stake in the bank to 26% from 15%. The promoter group is keen to increase its stake because it is an “opportune time” given the book value and net worth of the bank and any shareholder would be happy to invest in the bank, Hinduja said. This is a temporary “panic situation” and everybody gets worried in such situations, he said.

“…at this price, we would like to increase the stake. All communication responses have been given to the regulator. It is now left to the regulator when and how they will give it to us,” he said.

Hinduja was speaking at the sidelines of an event to announce the completion of acquisition of Reliance Capital by IIHL via insolvency proceedings conducted under the National Company Law Tribunal (NCLT).

The acquisition will help IndusInd International venture into the insurance sector—the main focus of the acquisition. Reliance Capital has two insurance subsidiaries—Reliance General Insurance and Reliance Nippon Life Insurance where Japan’s Nippon Life has 49% stake. Here the focus will also on bancassurance tie-ups with IndusInd Bank. Hinduja said such tie-ups will be a “priority” but done at an arm’s length.

He said that RCap has 39-40 subsidiaries, most of which are shell companies and the new board over the course of the next three-four weeks will take a call on which companies they want to keep post the acquisition. In addition to the insurance arms, the group would also be keen to hold on to the broking business under Reliance Securities and the asset recast operations under Reliance Asset Reconstruction Co. and is likely to exit or dissolve most other entities.

As per an internal estimate, the insurance companies’ valuation has been pegged at around ₹20,000 crore, Hinduja said, adding that the eventual plan is to grow these businesses over the next two years and then list them to fulfil the debt repayment obligations. The rebranding and ownership change is in process and will be undertaken over the course of the next six-nine months, he added.