Mumbai: The absence of an external auditor doing a concurrent audit on IndusInd Bank's marked-to-market (MTM) derivative losses has hit the bank hard, putting the spotlight on resultant vulnerability from an evident process gap that might not be limited to the private lender alone.In IndusInd's case, although the treasury transactions faced internal scrutiny, there was no external examination of the trading transactions. External scrutiny could have exposed the bank's treasury to questions on its hedging positions, bankers and analysts said.Also Read: Rating companies look for clues on IndusInd's health, control issues "Concurrent audit, if done, would have flagged risks on MTM losses to the bank and brought it into focus," said a risk management consultant at one of the big four firms. "This was, perhaps, the biggest gap in the bank's processes because this large MTM loss was probably ignored, despite the rupee having changed course."IndusInd Bank did not immediately respond to ET's mailed query for comment. Concurrent audits are real-time parallel checks done mostly by external auditors. Every transaction is audited thoroughly rather than a sample check, shortening the recovery timeline in case of an anomaly or a loss.IndusInd Bank's initial estimates of the loss come to about ₹1,600 crore or 2.35% of its net worth.Former banker and treasury veteran Manoj Rane, who was a part of the founding team at IndusInd, raised some important questions in a Linked-In post on Saturday.Control SegregationHe pointed out that the asset-liability management and trading business at the bank were not separated and they reported to the same person. Also, if the hedges were indeed appropriate, there was no question of this loss suddenly being realised or arising due to a change in Reserve Bank of India (RBI) guidelines."Once hedged internally with the trading book, the loss would still hit IndusInd, only if the trading book did not hedge the trades externally or suppressed/failed to disclose or account for the losses in the trading book," Rane wrote in his post. He questioned how the heads of market risk, global markets, chief financial officer and auditors missed such a big hole.Analysts said any sharp uptick from the estimated numbers so far could deepen the crisis of trust the bank is going through."While the reported loss, though sizeable, is unlikely to materially impact the bank's capital position, the broader concern is one of trust," said Prakash Agarwal, partner at Gefion Capital. "Banks operate with public money, leaving little room for error. This incident once again raises questions about the robustness of internal systems, processes, and management oversight. Moreover, given IndusInd Bank's heavy reliance on large wholesale depositors-who are known to be more volatile-such lapses could have implications for depositor confidence."The problem is more magnified in the case of banks like IndusInd for whom large corporate and institutional deposits make a big chunk of their liabilities. About 54% of IndusInd's ₹4.09 lakh crore deposit base is from wholesale depositors, who typically look for higher returns and can move large chunks of their money in case they perceive a higher risk. Moreover, 15% of its total deposits are in foreign currency, and these deposits need to be paid back in the original currency.