In today's talk we are deliver information about the Indusind Bank crisis and how it was started.
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The Talk
On March 10, 2025, the Indian stock market trembled. IndusInd Bank, the fifth-largest private bank in the country, saw its stock price plummet by a staggering 27% in a single day. Investors panicked, analysts scrambled for explanations, and the financial world watched in shock. This was no ordinary market fluctuation—it was the unmasking of a crisis that had been brewing for years.
Banks operate on a simple principle: they take in deposits at low interest rates and lend that money out at higher rates, pocketing the difference. They also earn from services like credit cards, insurance, and trading. But what happens when a bank starts bending the rules to chase bigger profits? What happens when risk management takes a backseat to speculative gambles?
For years, IndusInd Bank had played a dangerous game. A major source of revenue was forex funding—borrowing money in foreign currencies, lending it in Indian Rupees at higher interest rates, and hedging currency fluctuations through SWAP (Safe-Way Asset Protection) contracts, which are agreements between two parties to exchange cash flows or liabilities in different currencies. But in April 2024, the Reserve Bank of India (RBI) tightened the rules, banning banks from using internal hedging to manage these risks. It was a safeguard, meant to prevent financial instability.
But IndusInd Bank didn’t stop. For seven to eight years, they had relied on internal hedging, and they weren’t about to change course. Even after the RBI’s directive, they continued the practice, brushing aside concerns. Then came October 2024. The management finally saw it—the numbers weren’t adding up. Something was wrong with the bank’s foreign currency liabilities.
Sumant Kathpalia, a veteran banker with 37 years of experience, was at the helm. In the world of private banking, a CEO’s power isn’t absolute. They need two approvals: one from the Board of Directors and one from the RBI. When his tenure extension was up for review, he requested three years. The RBI gave him just one. A quiet red flag.
Then, another blow. CFO Gobin Jain abruptly resigned, and within 24 hours, a replacement was installed. No transition period, no time to pass the torch—an unusual move for a position of such importance.
And then, on February 28, 2025, something even stranger happened. Morgan Stanley Capital International (MSCI) added IndusInd Bank to its index. That meant mutual funds tracking MSCI had to buy the bank’s stock, pumping ₹2,200 crore into the bank’s shares at an average price of ₹1000. But behind the scenes, someone was selling—big investors, institutions, insiders. Within seven days, the stock crashed to ₹660. The market had been played.
Looking back, the warning signs had been there for months. In June 2024, when the stock was flying high at ₹1500, CEO Sumant Kathpalia quietly offloaded 80% of his holdings. His deputy, Arun Khurana, did the same. They weren’t betting on their own bank’s future. They were cashing out before the storm hit.
Then came the numbers no one could ignore. IndusInd Bank’s derivative positions—its bets on the market—had historically ranged between 35,000 and 60,000 contracts. But between November 2024 and March 2025, that number exploded to over 90,000. The bank wasn’t just hedging risks anymore; it was making massive speculative bets, gambling in ways few had realized.
Despite all this, there’s no bank run—yet. IndusInd still holds significant investments, and depositors haven’t panicked. But the full extent of the problem isn’t clear. The RBI is digging in. Internal and external auditors are on the case. The truth will come out.
But step back and consider the bigger picture. This wasn’t just about a single bank’s missteps. It was about a financial system built on trust, where cracks were beginning to show. The banking business has always been a high-stakes balancing act—managing assets, liabilities, risks, and rewards. When greed tips the scale, it doesn’t just affect shareholders. It affects millions of account holders, employees, and the economy at large.
The story of IndusInd Bank is eerily familiar. History has seen it before—reckless lending, unchecked risks, market manipulation, and then, collapse. Yet, time and time again, institutions make the same mistakes. How many more banks have skeletons in their balance sheets? How many are one bad trade away from disaster?
The regulatory agencies are on high alert. The RBI’s investigations are expected to reveal just how deep the rot goes. External auditors are combing through financial statements, looking for inconsistencies, hidden liabilities, and fraudulent activities. The coming months will determine whether this is an isolated event or the tip of the iceberg.
Markets thrive on information, and right now, investors are desperate for clarity. Is IndusInd a one-off case, or is it a warning sign of something bigger lurking beneath the surface? While the full picture is yet to emerge, one thing is certain—trust, once broken, is not easily restored.
The shock of March 10 will linger. The banking sector, regulators, and investors are watching closely. The lessons are clear: when profits become the only priority, when oversight weakens, and when warnings are ignored, the consequences are inevitable. The only question that remains—who’s next?
We’ll be keeping a close watch for you.
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Banking Crisis