Whistleblowers raise issue of loan renewal within IndusInd branch


Acting as whistleblowers, several people, including a group of senior industry executives, Bharat Financial Inclusion (BFIL), alerted the Reserve Bank of India (RBI) and the private sector lender’s board of directors. about gaps in governance and accounting standards for allegedly ‘evergreen’ loans reaching thousands of crore since the Covid-19 outbreak.

According to them, if the management of IndusInd is not able to quickly correct the practice of “adjusting new loans with past loan arrears”, the BFIL subsidiary would eat away at the finances of the parent company. These alleged transactions to dress up the books have damaged the microcredit business built over the years and could even spark a political backlash, the group warned in at least two emails to IndusInd Bank CEO Sumant Kathpalia at to some independent directors and to RBI officials between October 17 and 24.

IndusInd acquired microfinance lender BFIL – formerly SKS Microfinance – as part of a share purchase transaction in March 2019.

Kathpalia did not respond to questions from ET. An official of a public relations agency hired by the bank said: “The bank received a complaint from anonymous people. The bank has a well-established policy for dealing with such matters and the veracity of the allegations / complaints is being assessed. management review is underway, the bank has not yet encountered any significant conclusions that justify immediate action on any chief (sic). ”

Two people familiar with the developments said that on October 14, there was a separate whistleblower complaint of a “stranger” at RBI, saying that suggestions to create risk management and audit committees for BFIL had been ignored as an unlisted micro-credit subsidiary of IndusInd was not required to comply with the conditions of article 49 of the listing agreement. He also spoke of “hijackings” in extending loan contracts, cash disbursements and accounting practices.

Former non-executive chairman of BFIL raised red flags

Microcredit companies disburse loans through banking channels but collect cash while collecting loans. Fundraising for most microfinance companies has plummeted due to the pandemic, especially during the second wave.

Significantly, a month before the whistleblower’s complaint of October 14, BFIL’s non-executive chairman MR Rao resigned. In his September 15 resignation letter to the board members, Rao, who had been CEO of BFIL (SKS), said: “… I am aware that RBI has raised issues regarding BFIL, in particular the 80,000 loans made in May 2021, without client consent, and that’s something I expressed great concern about on the board and actually demanded a third party audit as well. For me, this is not a process failure but a deliberate act to consolidate repayment rates. I had also warned the board of directors of the serious consequences … ”

Rao did not respond to questions from ET and declined to confirm whether he was among the whistleblowers. S Dilliraj, a former chairman of the company who has worked with Rao for years, also declined to comment. Rao asked the board of directors to rescind the non-compete agreement he has with the company.

Someone who identifies and identifies as a “whistleblower” before RBI expects some degree of legal protection. In addition, the regulator does not disclose the identity of the whistleblower.

While an IndusInd Bank official said the bank had stepped up provisioning for its microcredit portfolio, one of the whistleblower emails claimed that two senior BFIL officials primarily responsible for covering up non-performing loans , threatened employees and tracked their call tapes to prevent them from talking about the matter. Another email said the government’s ECLGS program, which was intended to provide an emergency line of credit in the wake of the pandemic, was being used to “adjust arrears instead of giving credit to customers.”


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