Whistleblowers alert RBI about evergreening of loans at IndusInd Bank subsidiary

A group of senior officials at microlending firm Bharat Financial Inclusion has alerted the Reserve Bank of India and its board of the misgovernance and lapse of accounting norms to “evergreen loans” since the outbreak of the COVID-19 pandemic, reports said.

Bharat Financial Inclusion, formerly known as SKS Microfinance, is a subsidiary of IndusInd Bank. IndusInd Bank acquired Bharat Financial Inclusion in 2019.

Acting as whistleblowers, the officials warned that if the practice of “adjusting new loan money with overdues from earlier loans" is not checked immediately, the fault in the subsidiary would eat into the financials of the parent, Economic Times reported.

Evergreening of loans is a popular practice in which banks grant new loans to an account to revive those loans on the verge of default. A measure to hide non-performing assets (NPAs), evergreening of loans has far reaching consequences in terms of default.

The senior employees alleged efforts to dress-up loan books may result in a political backlash apart from ruining the microlending business built over years. The group sent emails to RBI officials, IndusInd Bank CEO Sumant Kathpalia and independent directors between October 17 and 24.

Acknowledging the complaint, an official at the PR agency for IndusInd Bank said, “While management review is in progress, the bank has yet not come across any material findings that warrant immediate action on any count (sic).”

IndusInd CEO Kathpalia did not respond to queries from ET.

A separate whistleblower complaint to RBI on October 14 had suggested setting up risk management and audit committees, which were ignored by the Bharat Financial Inclusion management, two anonymous sources told Economic Times. According to the management, it was not required for the unlisted microlending subsidiary of IndusInd to meet such norms.

In September, M.R. Rao, non-executive chairman of Bharat Financial Inclusion, resigned saying, “I am aware that RBI has raised issues with respect to BFIL particularly the 80,000 loans given in May 2021, without customer consent.”

Rao added that it appeared that these concerns were not process lapses but “a deliberate act to shore up repayment rates”.