IndusInd Bank to probe staff role in ‘tech glitch’ at micro credit arm

Disbursement of micro loans without obtaining the client consent at IndusInd Bank arm Bharat Financial Inclusion (BFIL) had happened due to a technical glitch, the bank said on Wednesday, citing the findings of an review by Deloitte Touche Tohmatsu. The bank’s board has now constituted a committee to assess staff accountability, if any, arising out of the findings of the report.

BFIL’s MD and CEO Shalabh Saxena and executive director and CFO Ashish Damani had tendered their resignations on November 25, 2021. The board decided to defer the decision to relieve the executives until the completion review which was going on at that point of time.

IndusInd said in November 2021 BFIL had disbursed nearly 84,000 loans in May 2021 without the customer consent getting recorded at the time of disbursement. The problem was highlighted by the field staff within two days and the technical glitch was rectified, according to the bank’s communication to the stock exchanges.

The potential implications of the review findings in terms of income recognition and provisioning requirement is Rs 13.5 crore. The portfolio, net of provisions, where consent recording was an issue amounted to Rs 8.87 crore as of December 31, 2021, or 0.03% of the microfinance portfolio, the bank said on Wednesday.

gThe technical glitch leading to disbursement of loans without recording of client consent was as a result of IT change management and process gap,” the bank said. As regards the product design, the probe report made no adverse findings in respect of compliance with the extant regulatory guidelines, IndusInd said.

The review by Deloitte focused on transactions for microfinance loans managed by BFIL between March 1, 2020 and October 31, 2021.

The bank’s microfinance products require full collection of arrears or repayment of overdue loan outstanding prior to fresh disbursement. The board took note of certain operational issues that were highlighted by the report with respect to product rollout. In one of the products, introduced to provide liquidity support to customers during the pandemic, sequencing of collections and disbursements could not be established as both happened on the same day. “This product was discontinued in September 2021 and the bank has on a prudent basis fully provided for the exposure from this product as of December 31, 2021,” IndusInd said.

The Deloitte report pointed out some areas for improvement in process and oversight of the banking correspondent activities of BFIL.

IndusInd Bank carried contingent provisions of Rs 3,328 crore outside of its provision coverage ratio, including Rs 368 crore towards its standard microfinance portfolio, as of December 31, 2021. It will make an additional provision of Rs 13.5 crore in Q4FY22 based on the findings of the review.

While the financial hit from the process failure is marginal, analysts will be closely watching IndusInd’s response to the governance aspect. Jefferies wrote in a note dated March 9, “While the financial impact is manageable, tightening of controls and smoother succession in MFI business (erstwhile CEO, CFO and some other team members had resigned to join competitor) will be key.”

from Banking & Finance – The Financial Express https://ift.tt/QXVanot