Last updated: 10 Nov, 2021 | 06:08 am
IndusInd Bank shares have been in focus after whistleblower allegations of loan irregularities in the bank. The share dropped 10% earlier this week on Monday, post which the bank has issued some clarifications to allay fears. Here’s a look at the issue in detail, and the outlook on the bank going forward.
Who are the whistleblowers, and what are they alleging?
A group of senior employees (acting anonymously) from IndusInd Bank micro-finance arm Bharat Financial Inclusion (BFIL) have reportedly alerted the board and the Reserve Bank of India about the lapses in governance and accounting norms to allegedly 'evergreen' loans running into thousands of crores since the outbreak of Covid-19.
What is evergreening?
Evergreening refers to a practice in which banks grant new loans to an account to revive those loans which are about to default. This leads to adjusting the old loan money with loans. This way, the bank reports lesser NPAs, as those loans which were about to default have been adjusted, and need not be classified as NPAs.
This practise to window dress the book of accounts have damaged the micro-lending business built over the years and could even trigger political backlash. If the practise is not corrected, the subsidiary’s business could eat into the financials of the parent IndusInd Bank.
IndusInd Bank strongly denies the allegation
IndusInd Bank said that all the loans originated and managed by BFIL, including during the Covid period, are fully compliant with the regulatory guidelines. During the pandemic, the customers faced operational difficulties and some have turned to intermittent payers, though a large part of them demonstrated a strong intent to repay on many occasions.
More complaints of irregularities
BFIL's Former Non-Exec Chairman had raised red flags around loan disbursements is his resignation letter to the board members. “I am aware that RBI has raised issues with respect to BFIL particularly the 80,000 loans given in May 2021, without customer consent. This is a point on which I expressed deep concern in the board and in fact demanded a third-party audit too. To me it appears to be not a process lapse but a deliberate act to shore up repayment rates,” he had said.
How many such loans have been disbursed?
IndusInd Bank on Saturday reported that nearly 84,000 loans were disbursed by its microfinance arm without the customer consent due to a ‘technical glitch’ in May 2021. This issue was highlighted by the field staff within two days and the technical glitch was rectified expeditiously, the bank says. Out of the above 84000 loans, only 26,073 clients were active with the loan outstanding at Rs.34 crore, which is 0.12% of the September-end portfolio.
Action taken by the bank
IndusInd Bank said that an independent review has been initiated by the Bank to see if there is any process lapse or accounting failure at BFIL. 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 outlook
While most brokerages have retained a positive stance on the bank, there are a few concerns. The market would wait for findings of the independent review. Analysts have demanded an external forensic audit of the books of Bharat Financial’s account to ascertain if the values are indeed ‘true’ and ‘fair.’ While the impact on financials would be negligible considering the loan book and the asset size of the bank, the market would awit clarity on these corporate governance issues.