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IndusInd Bank shares fall post denying allegations of loan evergreening. What brokerages say on stock? – Mint

IndusInd Bank’s management has refuted the allegations around the evergreening of loans, citing it as ‘inaccurate and baseless.’ The lender has further clarified the inadvertent disbursements to around 84k accounts happened without customer consent due to a technical glitch. Shares of IndusInd Bank plunged over 9% to 1078 apiece on the BSE in Monday’s early deals.

“The stock could witness some pressure due to adverse media articles and the asset quality stress reported by some other MFI lenders. Nevertheless, we expect the impact to be controlled. We maintain BUY, with unchanged target price of 1,400,” said Motilal Oswal in a note.

The bad loan recognition process is fully automated in accordance with the regulatory norms, the bank said in an exchange filing on Saturday. The clarification came on the whistleblower complaint regarding the evergreening of loans in its MFI subsidiary (Bharat Financial Inclusion – BFIL) and the disbursements of loans without customer consent.

“We believe that IIB made 3 mistakes in the ILFS case – first being in a denial mode about the underlying problem, then miscommunication and under-provisioning. As far as provisioning is concerned, IIB has come a long way and carries adequate contingent provisions over & above specific PCR. But it could have done better in terms of communicating about management changes in BFIL and a technical glitch in the MFI book, which led to allegations of evergreening in the MFI book (which otherwise has always been an area of suspicion),” Emkay’s note stated.

Brokerage house Emkay believes that the bank’s turnaround story remains intact, but it needs to work more on strengthening credit underwriting/risk management and communication with stakeholders to sustain the long-term rerating. It has retained Buy rating on the stock with a target price of 1,460.

IndusInd Bank had previously reported that a technical glitch had resulted in loans getting disbursed to customers’ accounts without their consent, and that the problem was rectified within two days. The bank said it has since made biometric authorization compulsory for disbursements and initiated an independent review to ascertain any process lapse or accounting failure at BFIL.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

 

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