Indusind bank denies evergreening but accepts technical glitch in loan disbursals

In an Economic Times report of November 5, there were some corporate governance issues at Indusind’s microfinance subsidiary Bharat Financial Inclusion (BFI). Indusind had acquired BFI (erswhile SKS Microfinance) in March 2019.

As per the subject report

  • Between October 17 and 24, several senior employees of BFI had written to the Reserve Bank of India (RBI), IndusInd’s Bank CEO Sumant Kathpalia and some independent directors about lapses in governance and accounting norms at BFI to allegedly ‘evergreen’ loans running into thousands of crores since the outbreak of Covid-19.
  • There is a risk of these practices at BFI eating into the financials of Indusind.
  • The said practices can even lead to political backlash.
  • Also a month before in September, non-executive chairman of BFI, M R Rao had stepped down mentioning that in May 2021, 80,000 loans were given without customer content. He had mentioned that to him it didn’t appear to be a process lapse but a deliberate act to shore up the repayment rates.

Indusind in a response to this report has issued a press release informing the following –

  • Allegation of evergreening of loans are inaccurate and baseless. All of BFI’s loans are strictly in compliance with the regulatory guidelines. Additional liquidity support and/ or moratorium were provided to borrowers to tide over the Covid crises in compliance with the regulatory guidelines.
  • 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. Out of the above, only 26,073 clients were active with the loan outstanding at Rs.34 crore, which is 0.12% of the September-end portfolio. The Bank carries necessary provision against this portfolio. The Standard Operating Procedure has since been revised to make biometric authorization compulsory.

From the subject report and Indusind’s press release it seems that there could have been some firefighting done to manage the Covid impact – very unlikely that they would have been done outside regulatory allowances.

An extract of Indusind’s press release –

During the pandemic, the customers faced operational difficulties and some have turned intermittent payers, though a large part of them demonstrated a strong intent to repay on many occasions. Basis the requirements, the Bank adopted a multi-pronged approach depending upon the need of the client:

  • Additional liquidity support to the extent of 20% of the outstanding as on Feb 29, 2020 as applicable under the ECLGS scheme
  • Restructured loan under applicable regulatory guidelines including extension of moratorium to help tide the immediate cash flow mismatch.
  • Additional loan with a longer tenor and lower EWI for customers, after they cleared of their arrears and with their due consent.

Read the above disclosure carefully and you will understand what I am trying to convey.

Evergreening in general is a very wide concept and there are times when it helps in managing the short term issues.

Whether it’s ok if someone does it. Theoretically no but then the world is not flat !

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