IndusInd Bank shares slump despite denying loan evergreening allegations

Stock market investors dumped shares of IndusInd Bank on Monday after allegations that a unit of the private-sector lender was “evergreening” loans, even though the bank denied the accusations.

The bank’s share price declined as much as 12.3$ to a low Rs 1,042.10 in early trade, before recovering a tad to Rs 1,066.70 around noon. This comes after the shares high a 52-week high of Rs 1,241.85 on October 28. The shares are still 57% higher than the 52-week low of Rs 678.10 in November 2020.

The bank’s shares dropped after The Economic Times on November 5 reported whistleblower allegations of loan evergreening by its microfinance unit Bharat Financial Inclusion Ltd.

However, the bank said that the allegations made by certain anonymous individuals “purportedly acting as whistleblowers” were “grossly inaccurate and baseless”.

The bank said that it had approved the loan products managed by Bharat Financial in its capacity as the bank’s business correspondent and that this was fully compliant with regulatory guidelines.

It also said that the processes followed by BFIL passed through audit, inspection, and risk and compliance checks. The non-performing asset (NPA) recognition process was fully automated in accordance with the regulatory norms applicable to the bank, it added.

The bank denied the allegations of “evergreening” the loans originated and managed by BFIL. “All the loans follow a weekly repayment model and the customers are required to make payments week on week; if there is any default, the same gets recorded as missed instalments. In view of the weekly repayment model, the concept of ever greening is infeasible,” the lender said.

Dismissing allegations related to approving loans without customers’ consent, the bank said 82% of the BFIL-serviced customers are in rural and deep rural India where access to banking services is limited. This issue got aggravated owing to operational issues arising out of the Covid-19 pandemic including lockdown, containment zones, and restrictions at the village/panchayat level, and necessitated disbursement of some loans in cash.

However, all loans disbursed by BFIL are through biometric authorisation of the customers, except in the case of a technical glitch in May 2021, when nearly 84,000 loans were disbursed without the customers’ consent getting recorded at the time of loan disbursement. This issue was highlighted by the field staff within two days and the glitch was rectified expeditiously, the bank said.

IndusInd reiterated that there was a strong risk management and control framework in place, both within the bank and at BFIL. Still, the bank has started an independent review to see if there is any process lapse or accounting failure at BFIL, it said.

What brokerages say

Brokerage house Motilal Oswal said IndusInd shares could face some pressure due to adverse media reports and asset-quality stress reported by some other microlenders. But it expected the impact to be controlled.

Motilal Oswal maintained its ‘buy’ rating on the stock and also kept the target price unchanged at Rs 1,400.

ICICI Securities said that the development may have an interim overhang on IndusInd shares even though the bank maintains its guidance credit costs and loan growth targets.

It also maintained a ‘buy’ rating with an unchanged target price of Rs 1,420.