A group of senior employees of the IndusInd Bank arm Bharat Financial Inclusion (BFIL) have alerted the Reserve Bank of India (RBI) and the board of the lender about misgovernance and ‘evergreening’ of loans to the tune of thousands of crores since the Covid-19 pandemic.
The whistleblowers warn that the dangerous practices at BFIL subsidiary might spill over into the financials of parent if not checked. Evergreening refers to the practice of keeping a loan account from defaulting by granting new loans to the account. This is a short-term measure used to hide non-performing assets (NPAs) but eventually leads to a much bigger blowout in terms of default.
The group in emails written to IndusInd’s Bank CEO Sumant Kathpalia, some independent directors and RBI officials between October 17 and 24, warned that dressing up of loan accounts may not only damage the group’s micro-lending business built over years but also cause a political backlash, according to a report in Economic Times. IndusInd Bank acquired BFIL, formerly known as SKS Microfinance, in a stock deal in March 2019.
“The bank has received complaint from anonymous person(s). The bank has a well-established policy to deal with such matters and the veracity of the allegations/complaints are being assessed. While management review is in progress, the bank has yet not come across any material findings that warrant immediate action on any count (sic),” the bank said in a response to queries on the matter, the ET reported.
It further added in yet another whistleblower compliant from an “outsider” to the banking regulator, suggestions to set up a risk management and audit committees for BFIL were ignored due to technicality under which the unlisted subsidiary of IndusInd Bank was not required to do so.
A month before October 14 whistleblower complaint, non-executive chairman of BFIL M R Rao, who had been CEO of BFIL (SKS) stepped down. In his resignation letter to board members, he said, “…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. I had warned the board too about the serious consequences…”
