IndusInd Bank admits procedural flaws in MFI lending; announces a 49% jump in profits in the third quarter

Private sector lender IndusInd Bank on Saturday reported a 49% rise in its December quarter net profit to Rs 1,241.55 crore and admitted procedural lapses in its microcredit vertical earlier in the financial year .

The bank’s managing director and chief executive, Sumant Kathpalia, said an investigation into a whistleblower complaint on Nov. 6 revealed procedural flaws in lending practices in the microfinance book, but stressed that this would have no financial impact.

There have been reports alleging the possibility of loan rollovers as the loans were issued without customer consent, which helped the bank remove non-performing assets in the first COVID-hit quarter. Kathpalia said addressing concerns about the microfinance portfolio was one of the bank’s priority areas during the quarter, and added that it had completed an internal review even though the findings of an external review were not forthcoming. were not yet finished.

The submission of the external review report and deliberations will be completed within the next fortnight, he said, adding that the blame will be fixed on the errant staff members. ”The internal report informed us that there was an MFI product, which offered cash support to clients affected by the second wave of COVID after settling existing dues. However, it was found that the cash disbursement and the repayment of the arrears took place on the same day, which in our view constitutes a procedural flaw. The product was discontinued in September,” Kathpalia said.

Kathpalia said loans of Rs 179 crore were outstanding under the product, and all were written off after being fully provided, and pointed out that the overall cost of credit on the MFI’s portfolio which is 12% of the bank’s aggregate advances will not exceed 8 percent.

The bank has received no “written” communication from the Reserve Bank on the matter, Kathpalia said, when asked about media reports that the regulator was also looking into the matter. The bank manager said the MFI’s operations will normalize from now on and the fourth quarter will also see book growth as disbursements take place.

For the quarter under review, the bank’s basic net interest income (NII) increased by 11% to Rs 3,793 crore, driven by advances growth of 10% and a shrinkage of 0.02% net interest margin at 4.10%.

Total fee income rose 14% to Rs 1,877 crore while deposits jumped 19%.

Overall provisions stood at Rs 1,654 crore from Rs 1,853 crore a year ago, while gross non-performing asset ratio improved to 2.48% from 2.77% a year ago. quarter. Its capital adequacy stood at 15.13% compared to 15.42% at the end of the previous quarter.

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