Reasons behind the huge fall in share price of IndusInd Bank

Whenever you want some loan from any bank, you know how much you have to travel for the deal happen. But there is an exception of a subsidiary of a bank which give more than 80 thousand crore rupees without proper document and permission.

After the whole incident non-executive chairman of the bank give his resignation letter. Same time he told something so controversial that whole IndusInd bank come into huge pressure. Today we are going to discuss about this in details. We will also discuss what can happen with IndusInd Bank in future. 

History of NonPerforminng assets

Some years ago a whistle blower told that there was something going wrong in ICICI bank. After that investigation started on this matter. Some facts come to public after that which was quite surprising and non-ethical. After that the chairman of ICICI bank, Mrs Chanda Kochar had to resign from her post. Same things happened with NSE and DHFL.

What happened with IndusInd Bank

Now the latest one to add in that list was IndusInd bank. In a subsidiary of this bank named Bharat Financial Inclusion transferred a huge amount of loan to the people without their requirement or permission.  This amount is not small, the whistle blower estimated the amount may be more than 1000 crore rupees in this evergreening process. Let understand evergreening quickly.

Evergreening process

Whenever people default their loan, banks try to hide the information. So that they send more loans to the defaulter. Thus they can show less defaulted loan amount for some time. This process is known as evergreening. The main purpose is to hide the defaulted loans. 

After the news spread, IndusInd bank stated that it was nothing but an technical glitch. Some trusted the bank and thought that matter will over. But some days ago, the non-executive chairman of the subsidiary resigned. 

Truth prevails 

He told some shocking statement after that. He said that RBI had raised issues with the respect to BFIL particularly 80000 loans without customer consent. Management did that to show more repayment rates. He also told that he wanted a third party audit but his proposal was denied by authority.

This bank is also struggling to manage its non-performing assets. In March 2018, this bank has 1705 crores of NPA which increased many folds in September 2021 to reach more than 6,000 crores. The companies who had taken loan from this bank, they have a high chance to default.

Other allegations

There are some allegations that management are pressurizing their employee not to talk about this.  There are also questions rising for the shareholding pattern of IndusInd Bank. The two companies of Mauritius which own 3 percent stakes in this company, have same address.

There is also not clarity of 8 percent stakes which was bought by an foreign company in Global Depository Receipt which is not transparent. After this, RBI is planning to make a rule so that everyone can know who is behind the Global Depository Receipt.  

Final Thoughts

The final question is that would the fate of IndusInd Bank same as Yes Bank. The answer is NO. In yes bank case the gross NPA was same with their loan book. But in case of IndusInd bank, the loan book is quite larger than the NPA.

The lesson from the incident you can take that, whenever you plan to invest in any bank, check their NPA properly, as many cases were found that banks are not giving transparent loan. This type of news you need to know as this will be vital in case of the growth of any bank.

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