Whistleblowers raise loan evergreening issue at IndusInd arm

Whistleblowers raise loan evergreening issue at IndusInd arm


Acting as whistleblowers, several people, including a group of senior employees of the arm, Bharat Financial Inclusion (BFIL), have alerted the Reserve Bank of India (RBI) and the board of the private sector lender about lapses in governance and accounting norms to allegedly ‘evergreen’ loans running into thousands of crores since the outbreak of Covid-19.

According to them, if the IndusInd management is unable to quickly correct the practice of “adjusting new loan money with overdues from earlier loans”, the subsidiary BFIL would eat into the financials of the parent. These alleged transactions to dress-up the books have damaged the micro-lending business built over the years and could even trigger political backlash, the group warned in at least two emails to IndusInd’s Bank CEO Sumant Kathpalia, some independent directors and RBI officials between October 17 and 24.

IndusInd took over the micro-finance lender BFIL – formerly SKS Microfinance – in a stock deal in March 2019.

Kathpalia did not respond to queries from ET. An official of a PR agency hired by the bank said, “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).”

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Two persons familiar with the developments said that on October 14, there was a separate whistleblower complaint from an ‘outsider’ to RBI, saying that suggestions to set up risk management and audit committees for BFIL were ignored as the unlisted micro-lending subsidiary of IndusInd was not required to meet Clause 49 conditions of the listing agreement. It also talked about “process lapses” in extension of loan contracts, cash disbursement and accounting practices.

BFIL’s Former Non-Exec Chair Raised Red Flags

Micro-lending companies disburse loans through banking channels but collect cash while recovering loans. Cash collection for most micro-finance companies dropped due to the pandemic, particularly during the second wave.

Significantly, a month before the October 14th whistleblower complaint, non-executive chairman of BFIL M R Rao stepped down. In his September 15th resignation letter to board members, Rao, who had been the CEO of BFIL (SKS), 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…”

Rao did not respond to ET’s queries and declined to confirm whether he was among the whistleblowers. S Dilliraj, former president of the company who has worked with Rao for years, also declined to comment. Rao has asked the board to cancel the non-compete agreement he has with the company.

A person who identifies and declares himself as a ‘whistleblower’ before RBI expects a degree of legal protection. Also, the regulator does not disclose the identity of the whistleblower.

While an IndusInd Bank official said that the bank had stepped up provisioning on its portfolio of micro loans, one of the whistleblower emails alleged that two senior officials of BFIL, who were primarily responsible for hiding non-performing loans, have been threatening employees and tracking their call records to restrain them from talking about the matter. Another email said that the government’s ECLGS scheme, which was intended to provide emergency line of credit in the wake of the pandemic, was used to “adjust arrears instead of giving credit to customers.”



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