IndusInd Bank’s MFI, Unsecured Loans Under Scrutiny

In a development that has raised serious questions, IndusInd Bank is conducting an internal probe into its microfinance loan portfolio after an audit flagged possible violations of lending norms. The investigation is focusing on small-ticket unsecured loans worth nearly ₹6,000–7,000 crore, which may have been issued improperly.

The core issue appears to be loans extended to the husbands of microfinance borrowers — a move allegedly made to avoid defaults.

Loans Given to Prevent Defaults, Not a Classic Rollover, But Close

According to people familiar with the matter, the bank may have sanctioned fresh loans to the husbands of existing microfinance institution (MFI) borrowers. This was reportedly done to ensure that earlier loans did not turn non-performing.

“What has happened is not a classic case of loan rollover, but something like that,” said a banker close to the investigation.

This method may have allowed the bank to show healthier asset quality on paper, but it raises serious concerns over adherence to proper lending practices.

Audit Red Flags and Classification Issues

The irregularities came to light during an internal audit, which raised red flags about how some loans were being issued and classified. It is suspected that some of these loans were even misclassified as agriculture loans, despite being tied directly to microfinance borrowers.

The audit findings suggested an intent to bypass lending norms by indirectly supporting borrowers who were at risk of default.

Internal Investigation Ongoing, Practice Now Stopped

Following the audit observations, the bank has reportedly stopped this lending practice. However, the internal investigation is ongoing, and fresh issues may surface as more loan files are examined in detail.

IndusInd Bank is actively reviewing the loans under the scanner, and it remains to be seen whether this could lead to any regulatory scrutiny or impact on asset quality.

Conclusion

This probe has put a spotlight on how microfinance loans are managed and whether they are being used in ways that compromise the integrity of financial reporting. As IndusInd Bank continues its investigation, stakeholders will be closely watching for any disclosures regarding the impact of these findings on the bank’s performance and compliance framework.

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