Tag: deloitte

IndusInd Bank appoints Deloitte to review whistleblower allegations at arm Bharat Financial, BFSI News, ET BFSI

Banking & Finance

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Private lender IndusInd Bank has appointed audit firm Deloitte to conduct an independent review of the whistleblower allegations on evergreening loans at its arm Bharat Financial Inclusion Limited (BFIL).

Until the completion of this review, the Board of Bharat Financial has deferred the decision to consider the resignations of Executive Director and CFO Ashish Damani as well as MD and CEO Shalabh Saxena; the top executives had tendered their resignation November 25, IndusInd Bank informed stock exchanges November 29.

“Both the Employees have offered their assistance in the ongoing review of transactions related to BFIL, for which the Bank has appointed a renowned international audit firm to conduct independent review and ascertain veracity of the anonymous complaints,” IndusInd Bank November 29’s regulatory filing said.

In the filing, IndusInd Bank did not disclose the name of this “renowned international audit firm”. ETCFO confirmed with a source aware of the matter who shared it is Deloitte. Deloitte will review loan disbursement processes at Bharat Financial and check if they are compliant with the Reserve Bank’s stipulated norms, the source, who did not wish to be identified, said.

A detailed questionnaire sent to IndusInd Bank seeking the audit firm’s name, its date of appointment, the expected timeframe of the independent review, and other queries asked in respect of whistleblower allegations went unanswered while Deloitte could not be reached.

On November 5, The Economic Times’ Sugata Ghosh had reported that a group of senior employees at Bharat Financial Inclusion, acting as whistleblowers, had alerted the Reserve Bank and the Board of the parent IndusInd Bank on lapses in governance and accounting norms to allegedly evergreen loans. The report pointed that the group had warned in at least two mails to IndusInd Bank CEO Sumanth Kathpalia between October 17 and October 24, and there was a separate whistleblower complaint from an outsider to RBI on October 14.

The report also said Bharat Financial Inclusion Non-Executive Chairman M R Rao had raised red flags in his resignation letter on September 15. “I am aware that RBI has raised issues with respect to BFIL particularly that 80,000 loans were given in May 2021, without customer consent. This is a point on which I expressed in the Board and in fact demanded a third-party audit too. To me it appears to be not a process lapse but a deliberate act to shore up repayment rates. I had warned the board too about the serious consequences,” Rao had said.

On November 6, the IndusInd Bank, came out with a press release, and refuted whistleblower’s allegations on loan evergreening at BFIL, terming them as “grossly inaccurate” and “baseless”, however, it admitted to disbursing 84,000 loans without customers consent and held technical glitch responsible for it.

CFO, CEO Resignations

The governance issue at the IndusInd’s arm became more prominent when Spandana Sphoorty Financial Ltd, a Hyderabad-based micro-lender, announced on November 22 the appointment of Shalabh Saxena as MD and CEO and Ashish Damani as its CFO.

A day later, on November 23, Indusind Bank came out with a regulatory clarification saying the duo are still employed with Bharat Financial Inclusion, and have not tendered their resignations. “…certain transactions relating to BFIL are subject matter of an ongoing review and the continued employment of Mr. Shalabh Saxena and Mr. Ashish Damani at BFIL is critical to the closure of such (a) process,” the clarification had said.

Subsequently, on November 25, the BFIL’s CFO and CEO tendered their resignations, IndusInd Bank informed in its stock exchange filing on November 29. In the interim, the lender has nominated J Sridharan, who has over two decades of experience in managing finance and governance functions at the bank, as Executive Director on the BFIL’s Board. Bharat Financial Inclusion Former Non-Executive Chairman M R Rao continues to be associated as an advisor to BFIL, the lender said.



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Mastercard submits new audit to India after ban over data handling, BFSI News, ET BFSI

Banking & Finance

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Mastercard has submitted a new audit report to India’s central bank, it told Reuters, as it seeks to overturn a ban on card issuance linked to concerns over the U.S. giant’s handling of data processed abroad.

The Reserve Bank of India (RBI) on July 14 sent panic-waves through Indian banking partners by announcing a ban, effective from July 22, to prevent the U.S. giant from issuing new cards. It cited non-compliance with 2018 rules that required it to store payments data only in India.

The RBI imposed the ban after deciding a “system audit report” submitted by Mastercard’s auditor Deloitte in April was unsatisfactory, three sources familiar with its decision-making said, asking not to be named because of the sensitivity of the issue. Two of the sources said the RBI was reviewing the new report.

In a statement to Reuters, Mastercard said Deloitte performed a “supplemental audit” and a new report was submitted on July 20 to the RBI, six days after the ban was announced.

“We look forward to continuing our conversations with the RBI and reinforcing how seriously we take our obligations. We are hopeful that this latest filing provides the assurances required to address their concerns,” it said.

Deloitte declined to comment, citing confidentiality obligations. The RBI did not respond to a request for comment.

The sources said the RBI was concerned Deloitte’s audit did not clearly state how long Mastercard took to purge Indians’ card data that is processed abroad before being stored locally.

India’s 2018 rules do not restrict where the data is processed, but for “unfettered supervisory access”, the RBI mandates that within a day the data – including transaction details and amount – should be stored domestically.

Mastercard in 2018 said it had started storing data at a facility in India’s western city of Pune to comply. But it still processes a part of each Indian transaction through data centres abroad, and later transfers and stores that data in Pune, one of the sources said.

The RBI has given no details beyond a seven-line statement announcing the ban. The details of RBI’s concern with Deloitte’s submissions have not previously been reported.

American Express, whose Indian presence is much smaller than that of Mastercard and Visa, has also has been banned from issuing new cards since April for violating the 2018 rules.

A fourth person with direct knowledge of the matter said the RBI had given Mastercard multiple extensions to submit clarifications and RBI only issued the ban when Mastercard asked for more time when an extension to July 9 lapsed.

Mastercard did not comment on the extension and the situation in Pune.



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Study, BFSI News, ET BFSI

Banking & Finance

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US banks are expected to cut 200,000 jobs over the next decade as they strive to improve productivity and efficiency amid rising competition from fintech and non-bank financial institutions, according to a Well Fargo analyst.

Mike Mayo has predicted that US banks would cut 200,000 jobs, or 10% of employees, over the next decade, according to a report.

The Wells Fargo analyst has given a similar call in 2019 saying that technological efficiencies will result in the biggest reduction in headcount across the US banking industry in its history, with an estimated 200,000 job cuts over the next decade.

In the fresh call, he said, this will be the biggest reduction in U.S. bank headcount in history.

Low paying jobs at risk

Mayo said that low-paying jobs are most at risk, such as those in branches and call centres as banks adapt to the new realities following the coronavirus pandemic. He added that job cuts have been necessary as technology companies and non-bank lenders increasingly gained market share in the payment and lending business over the past years.

The analyst said, “If I was giving advice to my kids, I’d say you probably don’t want to go into the financial industry.” He noted that technology and customer or client-facing roles are probably the only areas that will see growth, emphasizing that “It’s likely to be a shrinking industry.”

“Digitisation accelerated and that played to the strength of some fintech and other tech providers,” Mayo said. Banks must become more productive to remain relevant. And that means more computers and less people, he said.

2019 report

The Wells Fargo study in 2019 has said that the $150 billion annually that the country’s finance firms are spending on tech — more than any other industry — will lead to lower costs, with employee compensation accounting for half of all bank expenses.

Back office, bank branch, call centre and corporate employees are being cut by about a fifth to a third, with jobs related to tech, sales, advising and consulting less affected, according to the study.

“It will be a dramatic change in contact centres, and these are both internal and external,” Michael Tang, a Deloitte partner who leads the consulting firm’s global financial-services innovation practice, said in an interview in the Wells Fargo report. “We’re already seeing signs of it with chatbots, and some people don’t even know that they’re chatting with an AI engine because they’re just answering questions.”

Wells Fargo’s Mayo joins bank executives, consulting firms and others in predicting huge cuts to the banking workforce amid the push toward automation. McKinsey & Co. said in May that it expects the headcount for front-office workers — the bankers and traders historically seen as among nance firms’ most valuable assets — to drop by almost a third with the rise of robots.

Front-office headcount for investment banking and trading fell for a fifth year in 2018, according to Coalition Development Ltd. data. R. Martin Chavez, an architect of Goldman Sachs Group Inc’s effort to transform itself with tech, had said last month that all traders will soon need coding skills to succeed on Wall Street.



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Deloitte, BFSI News, ET BFSI

Banking & Finance

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Data sharing, cybersecurity and data protection have emerged as the top concern areas for the banks as well as customers, according to Deloitte‘s report on open banking. “About 70 per cent survey respondents feel that greater emphasis should be made towards data protection by institutions,” said the report ‘Open banking: Unleashing the power of data and seizing new opportunities’.

Deloitte said the insights in the paper are supported by extensive research, past work, and credentials, complemented by a survey to understand customer needs with 400 plus respondents across age groups and population codes.

The report further said more than 80 per cent of respondents are uncomfortable in sharing the transaction history of accounts, hinting towards a need for all financial institutions (FIs) to assure customers that their data is secure.

Observing that not only banks, but even customers are wary of data sharing, it said, “Cybersecurity and data protection are the top concern areas across all age groups, followed closely by wariness towards third-party access to data and transparency on data usage”.

Over the years, the value of data has reached unprecedented levels.

Countries, globally, are empowering customers with access to institutions of their choice, while jurisdictions are witnessing various approaches to open banking strategy and implementation based on regulatory favourability and industry maturity.

FIs, it said, also have realised that they are now custodians and not owners of data and are trying to move to alternative revenue streams after receiving customer consent. Sandeep Sonpatki, Partner, Deloitte India said the onset of the pandemic has given a boost to welcome digital and API based banking in India with most salaried respondents already being highly comfortable with digital banking.

“However, 69.3 per cent of respondents in our survey felt that greater emphasis should be placed on data protection by the institutions, which makes it very crucial for banks embarking on a journey to develop API-enabled products and services, to have a well-defined roadmap to produce demand-driven solutions and to remain ahead of the curve while maintaining the principles of customer-centricity, security, and trust,” he said.

The report further said access to data can be leveraged by FIs for lead generation, cross-selling products, risk assessment, pre and post delinquency management, collections strategy, and product development; potentially leading to significant business augmentation, asset quality improvement, operational efficiency, and cost optimisation.

Open banking, the report said, is perceived quite differently across jurisdictions. Some have gone ahead to create a regulator-driven, well-defined framework such as the UK and Australia; while others have followed a more market-driven approach such as India.

The bottom line, however, is providing customers control over sharing their information and servicing them through a targeted, data-driven approach, it added. Open banking also offers scope to increase customer onboarding at remote locations through quick, paperless documentation, verification, and alternate credit risk assessments.

With the onset of COVID-19 and the focus towards digitisation, the report said it believes the next 12-24 months will see a significant shift towards open banking amongst Indian FIs. Companies will invest in building core capabilities to address customers’ immediate needs.



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Russell Gaitonde, Deloitte, BFSI News, ET BFSI

Personal Finance

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Russell Gaitonde, Partner at Deloitte said, “This year’s budget was a fairly difficult act that the government had to achieve given that this year was a very unusual one with the global pandemic. The economy needed a lot of fiscal stimulus to get back on the path of recovery and i am glad that the hon’ble finance minister has gone down the path of giving the requisite fiscal stimuluses in terms of the investments proposed to be made in the infrastructure sector as well as the PSU divestments plans and recapitalisation of PSB banks. It is a road map that the FM has put out saying that the government intends to bring down the fiscal deficit to 4.9% by FY26. It’ll take around 5 years for the government to bring down the fiscal deficit but clearly there is an intention and path they have in mind.”

He added, “If you look at the budget in terms of balancing the books, the FM had to raise funds from somewhere. One option was to either increase the taxes or to effectively do it by way of a divestment plan. Had there been an increase in taxes which the FM has not done, there would have been a lot of human cry and created a negative sentiment. To balance that out the plan of the government is to go down the path of disinvestments which is the right thing to do.”

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