Microcredits disbursed by BFIL without the consent of clients: IndusInd; panel to assess accountability

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IndusInd Bank has set up a panel to assess the responsibility of its staff, if any, for the disbursement of loans by its microfinance subsidiary BFIL without the consent of customers during the period March 2020-October 2021.

The bank said auditing firm Deloitte submitted its report that the loans were disbursed without customers’ consent due to the “technical problem”.

The case relates to allegations of disbursement of microfinance loans by its subsidiary Bharat Financial Inclusion Ltd (BFIL) between March 2020 and October 2021, without seeking consent from clients.

In a late evening stock market filing on Tuesday, IndusInd Bank said Deloitte submitted its final report on March 7, 2022. Based on the report’s assessment and findings, the bank’s board noted the key points that there was a technical problem which led to the disbursement of loans without recording the consent of the client, he said.

It was the result of IT change management and the process gap, IndusInd Bank said in the filing. “The board has set up a committee to assess staff liability, if any, arising from the findings of the report,” the lender added.

In November, the private sector lender admitted to having disbursed up to 84,000 loans through its wholly-owned subsidiary, BFIL, without customers’ consent, while rejecting the whistleblower’s allegations of loan rollovers, calling it “grossly inaccurate and baseless” and that it was due to a “technical problem”.

Allegations were made by anonymous individuals about IndusInd’s trade correspondent for microfinance loans, BFIL, following which the bank took corrective action, including carrying out an internal audit, an IT audit and l stopping OTP-based authentication.

Subsequently, it appointed Deloitte Touche Tohmatsu India LLP (Deloitte) to conduct an independent review.

The scope of Deloitte’s audit review included examining the technical issue resulting in disbursement of loans without biometric authentication and OTP (one-time password) validation; review of product design and deployment from March 2020 to October 2021; review of the overall loan portfolio and process for identifying NPAs (non-performing assets) monitored by BFIL, among others.

The private sector lender said its microfinance products require full collection of arrears or repayment of delinquent loans before further disbursement to a client.

”Some operational issues were highlighted during the deployment of the product. In one of the products, introduced to provide liquidity support to clients during the COVID-19 pandemic, the sequence of collections and disbursements could not be established as both occurred on the same day,’ did he declare.

The lender stated that this product was discontinued in September 2021 and that the bank, on a prudent basis, had fully provisioned the exposure of this product as of December 31, 2021.

IndusInd Bank said its board noted there were areas for improvement in the process and oversight of the subsidiary’s correspondent banking business, particularly in technology and control. “The potential implications of the findings of the review, including failures in product execution and recording of customer consent, in terms of revenue recognition and provisioning requirement are Rs 13.5 crore “, did he declare.

However, with respect to product design, Deloitte made no adverse findings in terms of compliance with regulatory guidelines, the bank said.

On a conservative basis, the bank carries a contingent provision of Rs 3,328 crore outside the provision coverage ratio, including Rs 368 crore towards the standard microfinance portfolio, as of December 31, 2021.

In addition, the bank will make an additional provision of Rs 13.5 crore in Q4FY22 based on the findings of the review. The lender reiterated that there is a “robust risk management and control framework”, which will be further strengthened based on the findings of the independent review.

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)

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