Shares of IndusInd Bank were hammered down by more than 10% on Monday, November 8 after the bank admitted that its microfinance arm gave nearly 84,000 loans “without customer consent” due to a “technical glitch” in May 2021. This came after a report in the Economic Times on a whistleblower complaint to the RBI. On the Bombay Stock Exchange, the stock was down by 10.52% at the close.
According to the report, a group of employees flagged to the Reserve Bank of India (RBI) and the bank’s board that at Bharat Financial Inclusion (BFIL), the microfinance arm, there were lapses in governance. It added that there were allegations of evergreening loans as well. IndusInd has denied allegations of evergreening, calling them “grossly inaccurate and baseless”.
Evergreening is a term used to describe a situation when a failing loan on the verge of default is revived by a bank by extending further loans to the same borrower. The practice is used to stop from piling on non-performing assets, as loans whose principal and interest haven’t been paid for a certain time would be classified as non-performing assets.
In a statement after the story was published, IndusInd said that in May 2021, nearly 84,000 loans had been disbursed without customer consent. “This issue was highlighted by the field staff within two days and the technical glitch was rectified expeditiously,” it said.
Out of 84,000 loans, the bank said in its statement that 26,073 clients were active with the loan outstanding at Rs 34 crore, which is 0.12% of its September-end portfolio. “The Bank carries necessary provision against this portfolio. The Standard Operating Procedure has since been revised to make biometric authorization compulsory,” IndusInd said in a statement.
The statement said that 2% of BFIL customers are in areas where access to banking services is limited, and the issue was aggravated further because of the pandemic. “This issue further got aggravated owing to operational issues arising out of the Covid-19 pandemic including lockdown, containment zones, and restrictions at the village/panchayat level, and necessitated disbursement of some loans in cash,” it said, adding that in October 2021, all loan disbursements are through biometric authorisation.
IndusInd added that a review has been initiated at BFIL to “see if there is any process lapse or accounting failure”.