WHEN RISKS ARE UNHEDGED, PERCEPTION IS THE CASUALTY

INDUSIND BANK'S DERIVATIVE ACCOUNTING FIASCO HAS EXPOSED THE FRAGILE LINE BETWEEN RISK MANAGEMENT AND MARKET PERCEPTION.

- V. KESHAVDEV

THERE ARE THINGS known and there are things unknown, and in between are the doors of perception,” wrote the celebrated English writer Aldous Huxley in The Doors of Perception, inspired by his psychedelic experience in 1953 with the drug, mescaline. But Huxley's rumination extends far beyond altered consciousness—it’s deeply relevant in the world of investing. More often than not, market perception is shaped by what is known, rather than the unknown—and sometimes, that’s where the real risks lie.

While Huxley consumed 400 mg of mescaline under the careful supervision of British psychiatrist Humphry Osmond—who ensured he did not suffer any adverse effects—investors, when driven purely by perception and narratives, have no such safety net to shield them from unforeseen risks. And that’s precisely what has unfolded in the case of IndusInd Bank, India’s fifth-largest private-sector lender.

For years, IndusInd has been a familiar name in the private banking space, a mid-sized player straddling retail and wholesale banking. But now, it finds itself at the centre of a controversy that has rattled investor confidence and invited regulatory scrutiny. What began as an “accounting discrepancy” in its forex derivative books has snowballed into a major debate on transparency, risk management, and governance within the larger banking ecosystem.