RBI Grade BNABARD ESISEBI
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Context:
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Statutory auditors flagged a ₹600 crore discrepancy after reviewing IndusInd Bank’s microfinance income.
- Auditors discovered:
- Interest income was grouped together for multiple loans.
- Entries lacked borrower-level detail, despite varying interest rates.
- This method contradicts standard accounting practices where each borrower’s account must be individually recorded.
IndusInd Bank’s Response and Ongoing Audit
- On 22 April 2025, IndusInd disclosed that its internal audit team is reviewing the microfinance business.
- The bank has engaged EY (Ernst & Young) to assist in the forensic review.
- EY’s mandate includes:
- Verifying portfolio health
- Assessing accuracy of accounting practices
- Recommending corrective actions
Regulatory Scrutiny and RBI Involvement
- The Reserve Bank of India (RBI) has reportedly asked the bank to resolve the irregularities.
- RBI had previously flagged issues in another matter—a ₹1,959 crore derivatives misstatement, leading to top-level exits.
Leadership Crisis at IndusInd Bank
- The bank is undergoing a leadership transition:
- Deputy CEO Arun Khurana resigned after a Grant Thornton report on the derivatives issue.
- CEO Sumant Kathpalia also stepped down shortly after.
- The misreporting has shaken confidence in the bank’s internal controls and audit oversight.
Background on Microfinance Exposure
- Microfinance constitutes 9% of IndusInd Bank’s loan book.
- Portfolio size: ₹32,564 crore as of 31 December 2024
- Average loan per borrower in Q3 FY25: ₹42,274
- The bank acquired Bharat Financial Inclusion Ltd (formerly SKS Microfinance) in 2019, now a wholly owned subsidiary.
Audit Concerns and Industry Implications
- Experts from ICAI and banking sectors have raised concerns:
- Lapses in borrower-level income recognition should have triggered red flags much earlier.
- Bunching interest income contradicts norms where each loan is tracked individually for repayment, NPA classification, and interest accounting.
- There are growing calls for:
- Stricter auditing standards
- Increased oversight by regulators like RBI and ICAI
