In a rare and bold move within India’s banking sector, IndusInd Bank has initiated a clawback process to recover salaries and bonuses paid to its former top executives — ex-CEO Sumant Kathpalia and deputy CEO Arun Khurana — following internal findings of misreporting and misconduct.
Internal Probe Uncovers Accounting Misstatements
The decision follows an internal review that identified accounting irregularities in derivative trades, which led to a $230 million financial hit to the bank’s books earlier this year. The findings prompted the abrupt resignations of Kathpalia and Khurana in May 2025, both of whom now face regulatory scrutiny from the Securities and Exchange Board of India (SEBI) and enforcement agencies.
According to sources quoted by Reuters, the IndusInd Bank board sought legal advice on applying clawback clauses as per its internal code of conduct and the Reserve Bank of India (RBI)’s 2019 guidelines, which allow banks to reclaim pay from executives found guilty of misconduct.
The internal review reportedly cited “accounting misstatements, failure of internal controls, regulatory breaches, and non-compliance with RBI norms”, describing these as actions causing reputational and financial damage to the bank.
Clawback Period and Potential Impact
The clawback is expected to cover the period between December 2023 and March 2025, though the total recovery amount remains undisclosed.
According to the bank’s annual report for FY2025, Kathpalia’s fixed pay stood at ₹75 crore ($8.5 million), while Khurana earned ₹50 crore, in addition to stock options and bonuses that may also be subject to recovery.
Clawback enforcement, though provided for under Indian banking rules since 2019, has rarely been implemented — with only two known cases before this. However, employees may legally challenge such recoveries, potentially leading to a prolonged dispute.
Ongoing Regulatory Investigations
Both former executives are currently barred from trading in securities markets as SEBI investigates allegations of insider trading. Meanwhile, the new IndusInd Bank CEO has confirmed that an internal accountability exercise and a major organisational overhaul are underway to prevent such lapses in the future.
The bank has also established an internal panel to strengthen financial oversight, compliance, and risk management systems.
