IndusInd Bank sheds share value on MD admitting to Procedural Lapse.
IndusInd Bank previously faced profound reputational loss on accepting the evergreening of loans to 80,000+ accounts owing to a technical glitch. The incident, accompanied by the resignation of MR Rao, the non-executive chairman, questioned the quality of internal management. Adding to the stack, the MD of the firm recently admitted to procedural lapses, which led to the stock plunging to almost 3% intraday.
In the procedural lapse event, the bank received bulk loan repayments in cash on the same day, and on the other side, it disbursed extra loans to the same accounts. On November 6, 2021, CEO Sumanth Kathapalia mentioned the approval of a new product during Covid -2. The bank's risk committee designed the product, whereby the cooling period between repayment of early loans and the disbursement of new loans was reduced to "same day and three days." This came with an inherent risk of evergreening, but the bank ensured that it was concerned to make sure the disbursements happen only after the repayment process.
Even after assurance from the bank and a previous history of accidental evergreening(only a few months back), the bank was careless enough to allow the disbursal of loans on the same day. The benefit of doubt arises of whether the customers have received new loans and paid back their previous loans with the newly disbursed loans.
The procedural lapse resulted from the new product being approved by the bank's risk committee. This decision seems like an unnecessary revisal in the bank's policy reviewing market conditions. Experts advise the investigation of the new policy by both consultants and the authority. Whatever said, the company is witnessing a considerable blow to its reputation after the "technical glitch" and the "procedural lapse." The management and leadership quality of the bank is currently questioned. The loss in investor confidence overrode the positive quarterly results, 49% jump in net profit, and plunged the stock on January 31.
