The bank said on April 22 that its internal audit department is reviewing its microfinance business to “study certain issues that have caught the bank's attention.” IndusInd said four major auditors EY have been appointed to assist in the review of the records.
“When auditors looked at the documents, they realized that the documents were only a few accounts, not a separate entry for each loan. Interest rates also seemed temporary, not individual borrowers,” said one of the three.
Banks collect interest income from borrowers individually because they charge different rates to different people and the interest they receive is also different.
transition
Industrial Bank is in the middle of a management transition after two senior executives quickly left in succession ₹There are 19.59 million holes in the book. The first one to go was Deputy CEO Arun Khurana, who resigned two days after Grant Thornton submitted a report on the turnover. Next comes CEO Sumant Kathpalia, who found a successor before the bank.
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Indusind Bank's microfinance portfolio accounts for 9% of the bank's total loan books ₹As of December 31, 325.64 million. It is the second largest credit agency in India, according to its December quarter speech ₹The third quarter was 42,274, up 3% from the previous year. In 2019, the bank acquired Bharat Financial Compension Ltd (formerly SKS Microfinance) and classified it as a wholly owned subsidiary.
The second person, the Reserve Bank of India (RBI), also asked the bank to address the issues identified by the regulator. The second person quoted above said: “Like derivatives, even in this case, the Reserve Bank of India told the bank to repair certain issues.”
Corrective measures
Meanwhile, the third person EY is reviewing the portfolio to determine the health of the microcredit book and propose corrective measures.
Emails sent to EY, Indusind Bank and RBI have not been answered yet. A spokesperson for professional services company BDO declined to comment. Legal auditors MSKA & Associates are affiliates of BDO.
A spokesman for another auditor Chokshi & Chokshi said the bank had disclosed the matter on the stock exchange on April 22. “According to the above disclosure, the issue is being reviewed by the bank, so we cannot comment further on this regard,” the spokesperson said.
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Given that these mistakes have not been discovered yet, experts question the effectiveness of the audit system.
“It should raise red flags every quarter, every quarter,” said Vijay Kapur, former director of the Institute of Chartered Accountants (ICAI).
“Since NPA refers to every client or borrower, it seems difficult to ignore this earlier and something seems wrong,” Kapoor said.
Separate Accounting
Others say that each borrower’s interest income is always taken into account for each borrower separately, as each account has a separate interest rate.
“Every account is classified – repayments from standard or NPA, bundling them together doesn't work,” said a financial services analyst who asked not to be named.
To be sure, this is not the first time that stands out in Indusind Bank’s micro-loan business. In November 2021, the bank had said that it had paid about 84,000 loans without recording customer consent when the loan was paid due to a “technical failure” in May 2021.
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India's microcredit industry is undergoing some time of pressure that affects lenders. India Ratings and Research said in a report on April 10 that for banks and small financial banks, loan overdue increased by 200-300 basis points (BPS) by more than 90 days, from March 2024 to December 2024.
It said: “As the agency emphasized early on, developments in Karnataka may temporarily affect credit discipline for microfinance borrowers.”
