**IndusInd Bank Faces Scrutiny Over Microfinance Accounting Discrepancies**
IndusInd Bank is currently under investigation by its internal audit department regarding its microfinance operations, following the discovery of significant accounting irregularities. On April 22, the bank announced that it is reviewing its microfinance business to address concerns raised by its statutory auditors.
During a routine examination of the bank’s quarterly financials, auditors identified a troubling issue: the bank had aggregated interest income from multiple microfinance loans rather than recording them as individual entries. This oversight led to a discrepancy of ₹600 crore, as reported by sources familiar with the situation. The auditors alerted the bank to this issue, prompting the internal review.
IndusInd Bank has engaged Ernst & Young (EY), one of the Big Four accounting firms, to assist in the audit process. According to insiders, the auditors found that the interest income was recorded under a limited number of accounts, rather than being itemized for each loan. Additionally, the interest rates applied appeared to be arbitrary, rather than tailored to individual borrowers, which is standard practice in the banking industry.
This scrutiny comes at a challenging time for IndusInd Bank, which is undergoing a management transition following the resignation of two senior executives. The departures were linked to a previous accounting error involving derivative trades that resulted in a ₹1,959 crore shortfall in the bank’s financial statements. Arun Khurana, the deputy chief executive, resigned shortly after a report from Grant Thornton highlighted these lapses, followed by the exit of CEO Sumant Kathpalia.
As of December 31, IndusInd Bank’s microfinance portfolio accounted for 9% of its total loan book, amounting to ₹32,564 crore. The bank is recognized as India’s second-largest microfinance lender, with an average outstanding loan per borrower of ₹42,274, reflecting a 3% increase from the previous year. In 2019, IndusInd Bank acquired Bharat Financial Inclusion Ltd, previously known as SKS Microfinance, and integrated it as a wholly owned subsidiary.
The Reserve Bank of India (RBI) has also instructed IndusInd Bank to rectify the issues identified during its review, similar to the previous directive regarding the derivatives matter. EY is currently assessing the health of the bank’s microfinance portfolio and will recommend necessary corrective actions.
In conclusion, IndusInd Bank is facing significant challenges as it navigates through these accounting discrepancies and management changes. The outcome of the internal audit and the recommendations from EY will be crucial in restoring confidence among stakeholders and ensuring compliance with regulatory standards.
**FAQ**
**What is the current issue IndusInd Bank is facing?**
IndusInd Bank is under investigation for accounting discrepancies in its microfinance business, where interest income from multiple loans was improperly aggregated, leading to a ₹600 crore discrepancy.