IndusInd Bank clarifies; says whistleblower claims baseless

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The allegations made by some anonymous people allegedly acting as whistleblowers, as published in the Mumbai edition of Economic times November 5, 2021 titled “Whistleblowers Raise Permanent Loan Issue to IndusInd Arm” is grossly inaccurate and baseless.

IndusInd Bank admitted on Saturday that it disbursed 84,000 loans without the client’s consent in May due to a “technical problem”.

Loans without consent were reported by field staff within two days, and the problem was also corrected quickly, the private sector lender said in a clarification.

Media reported on Friday that anonymous whistleblowers were writing to the bank’s management and the RBI about BFIL, the bank’s microcredit-focused subsidiary, which allegedly used loan renewals, in which borrowers existing ones unable to pay their contributions were granted new loans. present the books as clean.

The statements cited in the report overlook factual aspects and the Bank wishes to clarify the following, she said in a press release:

Governance and control

· All loan products managed by BFIL as a Business Correspondent, are approved by IndusInd Bank and fully comply with applicable regulatory guidelines, issued from time to time. The processes followed by BFIL involve audits, inspections and risk and compliance controls. The NPA recognition process is fully automated in accordance with the regulatory standards applicable to the Bank.

· BFIL has an executive-level Risk Management Committee which meets every month. This committee was set up immediately after the merger. In June 2021, the Bank further strengthened the governance framework through a policy approved by the Board, in order to ensure a transversal review of BFIL’s activities.

Evergreening

· The Bank strongly denies the allegations of “retraining”. All loans initiated and managed by BFIL, including during the COVID period which saw the first and second waves ravaging the countryside, are fully compliant with regulatory guidelines.

· The Bank, through BFIL, provides micro-loans to rural women in India for income-generating activities under the Joint Liability Group format. This customer segment represents the bottom of the pyramid in terms of economic wealth and is the target segment for Financial Inclusion.

· During the pandemic, customers encountered operational difficulties and some became intermittent payers, although a large portion of them repeatedly showed a strong intention to repay. Based on the requirements, the Bank adopted a multi-pronged approach depending on the client’s needs:

o Additional liquidity support up to 20% of the outstanding amount as of February 29, 2020, as applicable under the ECLGS program

o Loan restructured in accordance with applicable regulatory guidelines, including the extension of the moratorium to help address the immediate cash flow mismatch.

o Additional loan with a longer term and a lower EWI for clients, after clearing their arrears and with their consent.

· All loans follow a weekly repayment model and customers are required to make payments week after week; if there is a default, the same is recorded as missed installments. Given the weekly payback model, the concept of permanent greening is infeasible.

· The NPA recognition process takes place on a daily basis; the data of the BFIL system pass directly to the centralized NPA system of the Bank, without any manual intervention.

Loans without client consent

· 82 percent of the clients served by BFIL are in rural and deep rural India where access to banking services is limited. This problem worsened further due to operational issues resulting from the Covid-19 pandemic, including lockdown, containment zones and restrictions at the village / panchayat level, and necessitated the disbursement of some cash loans.

· All loans disbursed by BFIL are disbursed via the biometric authorization of clients (with the exception of the technical problem reported below). As of October 2021, nearly 100% of loan disbursements were in customer bank accounts, as in the pre-Covid era.

· Due to a technical issue in May 2021, nearly 84,000 loans were disbursed without the client’s consent being recorded at the time of loan disbursement. This problem was highlighted by the field staff within two days and the technical issue was corrected quickly. Of the above, only 26,073 clients were active with an outstanding loan of Rs 34 crore, or 0.12% of the end-September portfolio. The Bank carries the necessary provisions in its portfolio. The standard operating procedure has since been revised to make biometric authorization mandatory.

The Bank reiterates that there is a solid risk management and control framework, both within the Bank and at BFIL. Nevertheless, an independent review was initiated by the Bank to see if there is a process failure or an accounting failure at BFIL. If necessary, the Bank will immediately take appropriate corrective measures and keep all stakeholders sufficiently informed. The Bank has followed a prudent provisioning approach and reiterates that there is no change in the estimates of the cost of credit, including in the microfinance sector.

The Bank once again denies all the allegations.

Posted on: Saturday November 06, 2021 11:57 am IST


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