EY not involved in forensic audit of MFI business, says IndusInd Bank

Private sector lender IndusInd Bank on Tuesday clarified that EY is not engaged in the forensic audit of its microfinance (MFI) business, saying that the accounting firm is assisting the bank’s internal audit department (IAD) in reviewing certain records.

 

The bank’s clarification to the exchanges comes following media reports claiming that the bank has engaged EY to conduct an audit of its MFI business because of a ₹600 crore discrepancy in the portfolio.

 

“As a part of the process of finalisation of accounts, the bank’s IAD is conducting a review of the bank’s MFI business to examine certain concerns which have been brought to the bank’s attention. In connection with this exercise, the bank is engaged with EY to assist the IAD in reviewing certain records of the bank. The review by the bank is ongoing,” the bank said.

 

As of the December quarter (Q3FY25), the bank’s MFI portfolio stood at ₹32,564 crore, accounting for 9 per cent of its total loan book. The MFI segment of the bank has been under stress in line with the entire MFI industry. In Q3FY25, the bank reported incremental slippages of ₹2,200 crore, of which a major portion came from the MFI book.

 

The bank’s shares tumbled nearly 5 per cent on the BSE on Tuesday to close at ₹787.65, following the news reports.

 

This comes after PwC—the external agency appointed by the bank to assess the impact on net worth due to discrepancies in its derivatives portfolio—reported a marginally lower hit than what the bank’s internal review had initially estimated.

 

Last week, the bank disclosed that PwC has identified discrepancies in its derivatives portfolio and estimated a negative impact of ₹1,979 crore as of June 30, 2024. Based on the external agency’s report, the bank said that the discrepancies would have an adverse post-tax impact of 2.27 per cent on its net worth as of December 2024.

 

Analysts believed this to be incrementally positive in the near term as the impact of discrepancies will be limited to what was ascertained earlier by management. And the focus would shift to the forensic audit report due from another external agency where the focus is to ascertain the root cause and accounting for the discrepancies in the derivative portfolio.

 

The bank has previously disclosed that it has appointed an independent professional firm – Grant Thronton – to conduct a comprehensive investigation to identify the root cause of the discrepancies in its derivative portfolio.

 

Another major overhang on the bank is the management succession as the RBI has only granted a year’s extension to the current MD & CEO.