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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.