If any Mickey Mouse accounting goes on for years in the treasury, it would, however, be with the knowledge of the mid-office that monitors – or, is supposed to monitor – the risks and reports any breach to the treasurer and chief risk officer. In the sequence and hierarchy of these divisions that witness millions of bond, currency and derivative deals, the front office ‘creates’ the risk to make money, the mid office ‘keeps tabs’ of positions, and the back office records and reconciles. In some ways, a treasury is a bank within a bank.
Among this cast of characters, some (directly reporting to the kingpin) would be typically aware of sharp practice; many lower in the ranks would blindly do what’s told to them; and some would look the other way while letting the music go on. The army of auditors scrutinising the books, and probably call records and chats of IndusInd Bank officials, will have to ferret out exact quantum of losses, gaps in processes, and why the funny divergent accounting – booking profits while deferring losses of mirror derivative transactions – went on since 2016. It would hint who knew what, whether conflicted reporting arrangements fuelled the folly, and whether someone from the back office had ever raised a red flag.
When the bank’s ₹1,500 cr derivative loss – analysts are awaiting the final number from PwC‘s review and Grant Thornton‘s (GT) forensic audits – hit the headlines, many in the bank involved in the dreary businesses of giving loans, raising deposits and selling cards were as flummoxed as the small shareholders. Their angst and anger is understandable: tied to comparatively slow-burn businesses, they settle down for bonuses than are lower than their colleagues in treasury who have been running their little show, keeping the rest in the dark.
One of the many mysteries around the losses is the mandate to PwC that was hired last year. It was asked to do a ‘review’ – not an ‘audit‘, which would have required a disclosure to the stock exchange. One is left to wonder why the Big 4 firm, which got down to work in October, is yet to submit its report. Either PwC never had access to all the data, or it had lost its way inside the rabbit hole of IndusInd numbers.
GT, which has to carry out a more intensive scanning of numbers and documents, must do the job in less than half the time if the bank has to meet the May 31 deadline for announcing Q4 results. Why? Because statutory auditors, anxious to ring-fence themselves, will not sign the accounts till the consultants give their findings.So, pace is paramount for IndusInd. Not just for regulatory reasons. It’s a sordid story that the bank, and everyone else who matters, would like to leave behind as soon as possible. Officials of IndusInd and image merchants who were passing off the losses as an ‘accounting error’ would like the dust to settle.RBI, seemingly beyond reproach, would not want the oversight of its inspectors to be talked about. Auditors desperately want their slip-ups to be pardoned with a rap on the knuckles. The promoters, Hindujas, who have pledged half their holding in the bank and somehow cobbled together funds (for acquisition of Reliance Capital) just before the news broke, must be hoping for a swift conclusion. And, five years after the Yes Bank debacle, New Delhi would never want another private bank to make news for wrong reasons. Everyone wants to move on – perhaps for good reasons.
In such a milieu, the bank’s board of directors, along with its audit and other committees, would be overwhelmed by an urgency to act fast, clean up and punish the wrongdoers to regain the trust of investors and preserve the faith of depositors. That’s natural. But, while some heads may roll and stock options to a few key functionaries may be clawed back, such actions often leave a trail of collateral damage as other men and fall guys caught in the crossfire of egos and blame game land under the bus.
As they pick up the pieces, it’s a thought for the men and women who are today in charge to bring about a closure.
