IndusInd Bank shares slid 12 percent on Monday after a report said whistleblowers had alleged loan evergreening at the private sector lender’s microfinance arm.
At 11:44 am, shares of the lender were down 10.4 percent at Rs 1,065.
According to a report, whistleblowers alerted the Reserve Bank of India and the IndusInd board that Bharat Financial Inclusion had evergreened some loans – a practice where new loans are given to stressed borrowers to enable them to repay existing loans.
IndusInd Bank denied the allegations through an exchange filing.
“The allegations made by certain anonymous individuals purportedly acting as whistleblowers, as published in the Mumbai edition of The Economic Times on November 5, 2021, titled “Whistleblowers Raise Loan Evergreening Issue at IndusInd Arm” are grossly inaccurate and baseless,” the private lender said.
All the loans originated and managed by Bharat Financial Inclusion, including during the Covid period which saw the first and second waves ravaging the countryside, are fully compliant with the regulatory guidelines, the bank said.
The bank, through Bharat Financial Inclusion, provides microloans to women in rural 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.
Motilal Oswal Financial Services had said that the stock could witness some selling pressure due to adverse media articles and the asset quality reported by some other MFI lenders. Nevertheless, the brokerage expects the impact to be controlled.
Meanwhile, “Few large ticket loan defaults in 2019 and subsequent stock price collapse around the Yes Bank crisis had shaken investor confidence. Along with a change in management, and consolidation and loan book rejig over the past two years, we were expecting an earnings rebound and a return in investor confidence, as the economic activity picked up the pace. The latest snipe against the bank, therefore, although aggressively denied by the management, may result in a delayed re-rating,” said Nomura.
CLSA said the bank’s board has been receiving these anonymous complaints since September-October 2021, including Rao, ex-vice chairperson of Bharat Financial, highlighting the risk.
During the IL&FS time, IndusInd had a weak track record of asset quality guidance and while the new CEO has gained credibility over the past 18 months, CLSA believes disclosures even in this case could have been more proactive.
First Published: IST