Microfinance loan disbursals during COVID-19 was a result of an IT glitch: IndusInd Bank

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IndusInd Bank has said that the microfinance loan disbursals by its subsidiary during the COVID-19 period was the result of a technical glitch, according to the findings of audit firm Deloitte.

The matter is related to allegations of disbursal of microfinance loans by its subsidiary Bharat Financial Inclusion Ltd (BFIL) between 1st March 2020 and October 2021, without seeking the consent of the customers.

The bank took immediate corrective steps after receiving complaints, including conducting an internal audit, IT audit and discontinuation of OTP-based authentication for loan disbursal in November 2021, according to media reports.

It appointed Deloitte Touche Tohmatsu India LLP (Deloitte) to conduct an independent review.

The report further added that IndusInd Bank has said that Deloitte submitted its final report on March 7, 2022. The review consisted of the following points examining the details of the technical glitch resulting in disbursement of loans without biometric authentication and OTP validation, examining product design and implementation of products rolled out during the 1st and 2nd wave of COVID19 pandemic, i.e. between March 2020 and 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.

On the basis of the assessment and findings of the report, the bank’s board noted key points that there was a technical glitch that led to the disbursement of loans without recording of client consent. It was a result of the IT change management and process gap, IndusInd Bank said in a late-night stock exchange filing on Tuesday.

“The portfolio, net of provisions, where consent recording was an issue amounted to Rs 8.87 crore as of December 31, 2021 (0.03 per cent of the microfinance portfolio).

“The bank’s microfinance products require the 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,” the bank said.

On a prudent basis, the bank carries a contingent provision 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 13.5 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,” it said in the filing.

The bank further mentioned that there is a strong risk management and control framework in place, which will further strengthen the findings of independent review.

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