To deter misconduct, Indian banking regulations have allowed clawback provisions in employee contracts since 2019, but such efforts have been rare, with just two known instances since, while employees may challenge such actions legally.
This year, IndusInd Bank disclosed incorrect accounting on derivative trades that prompted a $230 million hit to its accounts and led to the exit of former CEO Sumant Kathpalia and deputy CEO Arun Khurana in May.
The two sources spoke on condition of anonymity as they are not authorised to speak to media.
Khurana responded to Reuters queries via text message declining to comment, saying he had no information on the matter. Kathpalia did not respond to an email and text message. The bank did not respond to an email seeking comment.
BANK BOARD GETS LEGAL OPINION, SOURCE SAYS
"The board of IndusInd Bank has obtained legal opinion on fixing staff accountability on the basis of its own internal code of conduct and as per Reserve Bank of India (RBI) guidelines," said the second source.
The source said the bank board viewed the case as one of "accounting misstatements, regulatory sanction, failure of internal controls and failing to ensure compliance, leading to breach of rules, regulations and damage to the bank".
The bank's publicly available code of conduct regards such acts as constituting "misconduct, necessitating disciplinary action".
The clawback could cover the period between December 2023 and March 2025, the source added.
Reuters could not determine the amount of clawback or whether additional officials could face such action.
The company's annual report for the fiscal year ending in March 2025 showed Kathpalia's total fixed pay was 75 million Indian rupees ($853,290), and he exercised 248,000 stock options. Khurana's total fixed pay was 50 million rupees.
REGULATORS INVESTIGATE INSIDER TRADING ACCUSATIONS
The duo also face regulatory action by the Securities and Exchange Board of India (SEBI), which barred them from securities markets in May until it completes its investigation of accusations of their insider trading.
This month, the bank's new chief told Reuters it was carrying out an internal accountability exercise and would complete an organisational overhaul before the new financial year begins on April 1.
The private sector lender has also set up an internal panel to tighten financial systems and controls.
(This story has been corrected to show Kathpalia's fixed pay was 75 million Indian rupees, not 750 million rupees, and Khurana's fixed pay was 50 million rupees, not 500 million rupees, in paragraph 12)
