IndusInd Bank shares tank on whistleblower complaint, the bank clarifies the allegations and justifies strong governance structure.

In the concall hosted by Mr Sumant Kathpalia, MD & CEO of IndusInd Bank, stated that the recent allegations against the bank regarding the evergreening of loans in its MFI subsidiary (Bharat Financial Inclusion Limited – BFIL) and the disbursements of loans without customer consent were baseless and inaccurate. He further clarified that chaos of the disbursements to ~84k accounts without customer consent happened due to a technical glitch. However, only 26k clients (of the total) were active, with a loan outstanding of Rs. 340m which is 0.12% of MFI loans. He also clarified that the company has provisions against the portfolio.

He also disposed of media articles circulating other allegations of top-level executives resigning from their posts. Mr. Rao, Non-Executive Chairman of BFIL who resigned in September this year, continues to work as an advisor with the IIB. The company supported their argument by mentioning their strong governance structure and risk framework remain strong; it has strengthened these over the years through strict supervision.

The management has maintained its loan growth and credit cost guidance as given during the 2QFY22 results. It expects loan growth to be 16–18%, and CASA ratio in excess of 40% by FY23E. CASA deposits (of the total deposits) is estimated to grow at 14.6% to Rs. 1227.4bn for FY22E. The credit cost of 160–190bp with an additional 50bp for Vodafone, the total credit cost guidance stands at 240bp. 

In Q2FY22, the MFI book for IIB stood at Rs. 281bn, which is, ~12.7% of loans, CAGR for past two years stood at 22%, NPAs in the MFI book stood at Rs. 9.05bn, which is, 3% of MFI loans, while the restructured book stood at Rs. 9.07bn, which is, 3.2% of MFI loans, with ~55% of customers completing at least three loan cycles. The PAT is estimated to grow to 69.5% to Rs. 48.1bn, NII to grow to 13.4% to Rs. 153.3bn and deposits to grow at 16% to Rs. 2972bn for FY22E.

Overall, the bank expects credit costs to range at 6–8% in the MFI business, with growth likely to remain strong. The total SMA book within MFI stood at Rs 50.5bn as of 31st Oct’21. SMA 0-30 dpd stood at INR26b, 30-60 dpd at Rs. 10.6bn, with the balance in 60+ dpd (including NPAs). ECLGS disbursements in MFI loans stood at Rs. 6bn.
The company stated that the business continues to do well with collection efficiency improving to 94.6%, surpassing pre-COVID levels in Oct’21. However, MFI, in Kerala and West Bengal remain lower, while other states are showing healthy trends.