Under fire, IndusInd Bank begins review of microfinance subsidiary

Private lender IndusInd Bank has initiated an independent review of its microfinance arm Bharat Financial Inclusion Ltd (BFIL) to see if there was any process lapse or accounting failure after a complaint by a whistle blower.

“Should there be any need, the Bank will immediately take corrective action as appropriate and keep all the stakeholders adequately informed. The Bank has been following a conservative provisioning approach and reiterates that there is no change in the credit cost estimates including that in the micro-finance business,” IndusInd Bank said in a statement.

A group of senior officials at BFIL, a micro-finance lender, has alerted the Reserve Bank of India (RBI), IndusInd Bank CEO Sumant Kathpalia and independent directors of the bank of ‘misgovernance and lapse of accounting norms to evergreen loans’ since the pandemic.

Denies ever-greening charge

IndusInd Bank said its subsidiary disbursed nearly 84,000 loans without customer consent due to a technical glitch, even as it denied allegations of ever-greening of loans. It underlined that there is a strong risk management and control framework in place, both within the bank and at BFIL. “Due to a technical glitch in May 2021, nearly 84,000 loans were disbursed without the customer consent getting recorded at the time of loan disbursement. This issue was highlighted by the field staff within two days and the technical glitch was rectified expeditiously,” the lender said.

Of this, only 26,073 clients were active with the loan outstanding at ₹34 crore, which is 0.12 per cent of the September-end portfolio. “The bank carries necessary provision against this portfolio,” it said, adding that the Standard Operating Procedure has since been revised to make biometric authorisation compulsory.

Refuting allegations of “ever-greening”, it further said that all the loans originated and managed by BFIL, including during the Covid period, are fully compliant with the regulatory guidelines.

About 82 per cent of the BFIL serviced customers are in rural and deep rural India. All loans disbursed by BFIL are through biometric authorisation of the customers, except those disbursed due to the technical glitch, it further said, adding that in October 2021, nearly 100 per cent of the loan disbursements were in the bank accounts of the customers, as in pre-Covid time.