IndusInd Bank reported on Saturday that nearly 84,000 loans had been disbursed by its microfinance arm without client consent due to a technical issue in May 2021.
According to the private sector bank, this problem was highlighted by field staff within two days and the technical issue was corrected quickly.
“On the above, only 26,073 clients were active with an outstanding loan at Rs 34 crore, or 0.12% of the end-September portfolio,” the bank said in an exchange brief. The loans were disbursed through IndusInd Bank’s microfinance subsidiary, Bharat Financial Inclusion Ltd (BFIL).
“The bank carries the necessary provisions on this portfolio. The standard operating procedure has since been revised to make biometric authorization mandatory, ”he said, adding that he wished to reiterate that there is a strong framework for risk management and control, both within the organization. bank than at BFIL.
“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,” he said.
The processes followed by BFIL go through audits, inspections, and risk and compliance checks, the bank said, adding that the process for recognizing NPAs is fully automated in accordance with regulatory standards applicable to the bank.
He said an independent review had been initiated by the bank to see if there was a process failure or an accounting failure at BFIL. “If necessary, the bank will immediately take appropriate corrective action and keep all stakeholders sufficiently informed,” he added.
“The bank strongly denies the allegations of ‘evergreening’. All loans issued and managed by BFIL, including during the Covid period which saw the first and second waves ravage the countryside, are fully compliant with regulatory guidelines, ”he said.
IndusInd 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, he said.
“During the pandemic, customers encountered operational difficulties and some became intermittent payers, although a large portion of them repeatedly demonstrated a strong intention to repay,” the bank said.
He added that all loans disbursed by BFIL are disbursed through biometric authorization of clients (except for the technical issue reported below).
As of October 2021, almost 100% of loan disbursements were in customer bank accounts, as in the pre-Covid era, he said. He said 82% of 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 required the disbursement of some cash loans, added the bank.
“The bank has followed a cautious provisioning approach and reiterates that there is no change in estimates of credit costs, including in the microfinance sector,” he added.
According to IndusInd Bank, 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 repayment model, the concept of renewal is infeasible, he said.
“The NPA recognition process takes place on a daily basis; the data from the BFIL system pass directly to the centralized NPA system of the Bank, without any manual intervention ”, he added.
