Loans given at BFIL without customer nod due to technical glitch: IndusInd Bank

Private sector lender IndusInd Bank has said that a ‘technical glitch’ led to the disbursal of microfinance loans by its subsidiary without customers' consent, biometric authentication and OTP validation during the COVID-19 pandemic, as per the findings of the auditing firm Deloitte. The bank has also set up a panel to probe its staff’s accountability, if any.
 
The matter relates to allegations of disbursal of microfinance loans by its subsidiary Bharat Finance Inclusion Limited (BFIL) between March 2020 and October 2021 without the consent of its customers. 

Disbursal of loans without following KYC norms and recording customers’ consent at BFIL was brought to notice by whistleblowers in November 2021, as per the IndusInd Bank release on Tuesday, March 8.
 
After receiving whistleblower complaints, the bank took immediate steps like conducting an internal audit, IT audit and discontinuing OTP-based authentication for loan disbursal in November 2021. The IndusInd Bank then appointed Deloitte Touche Tohmatsu India LLP or Deloitte to conduct an independent review of the technical glitch.
 
Deloitte submitted its report on March 7 wherein it focused on four main points.  These were - examining the details of the technical glitch resulting in the disbursement of loans without biometric authentication and OTP validation, examining product design and implementation of products rolled out during the first and second wave of COVID-19 pandemic between March 2020 to October 2021, review of the overall loan portfolio and the NPA identification process followed by BFIL and assessment of accounting impact on income accrual and income recognition, if any.
 
As per Deloitte’s findings shared in the press release, the technical glitch was caused due to the IT change management and process gap. The loan portfolio, where consent recording was an issue, amounted to Rs 8.87 crore as of December 31, 2021. These findings also state that with regards to product design, there were no adverse discoveries made in respect to compliance with extant regulatory guidelines.
 
“Bank’s microfinance products require full collection of arrears or repayment of overdue loan outstanding prior to fresh disbursement to a customer. Certain operational issues were highlighted in product rollout," Deloitte’s findings noted.
 
They also underscore, “In one of the products introduced to provide liquidity support to customers during COVID-19 pandemic, the 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.”
 
Deloitte also highlighted some areas for improvement in process and oversight of the banking activities of its subsidiary – BFIL—especially in technology and control. The likely implication of the review findings – lapses in product execution and issues with recording clients’ consent – stand at Rs 13.5 crore in terms of income recognition and provisioning requirement.
 
The bank carries contingent provisions of Rs 3,328 crore outside of the provision coverage ratio, including Rs 368 crore towards the standard microfinance portfolio as of December 31, 2021.
 
“Further, the bank will make an additional provision of Rs 13.15 crore in Q4FY22 based on the findings of the review. The Board has constituted a committee to assess staff accountability, if any, arising out of the findings of the report,” the bank noted.
 
IndusInd Bank stated that it has a “strong risk management and control framework in place”, adding that this framework will be strengthened further on the basis of Deloitte’s findings.
 
(With agency inputs)