Why IndusInd bank share Dropped?
IndusInd Bank’s share dropped 12% as a result of the loan evergreening news as claimed by some industry informer; the bank rejects the charges. At 11:44 a.m. on Monday, November 8, 2021, the lender’s stock was down 10.4% to Rs 1,065.
On Monday, IndusInd Bank stock fell 12% after a report claimed whistleblowers had alleged loan evergreening at the private sector lender’s microfinance unit.
In a stock exchange filing, IndusInd Bank refuted the charges.
“The claims made by certain anonymous persons ostensibly acting as whistleblowers, as published in The Economic Times Mumbai edition on November 5, 2021, captioned “Whistleblowers Raise Loan Evergreening Issue at IndusInd Arm,” are totally wrong and false,” the private lender stated.
Bharat Financial Inclusion’s loans, including those created and handled during the Covid period, when the first and second waves ravaged the countryside, are totally consistent with regulatory criteria, according to the bank.
Under the Joint Liability Group framework, the bank, through Bharat Financial Inclusion, provides microloans to women in rural India for income-generating enterprises.
In terms of economic wealth, this client sector represents the bottom of the pyramid, and it is the target segment for Financial Inclusion.
According to Motilal Oswal Financial Services, the stock may face selling pressure as a result of negative media reports and asset quality reports from other MFI lenders. Nonetheless, the brokerage anticipates a limited impact.
Meanwhile, “a few large ticket loan defaults in 2019 and a consequent stock price fall around the Yes Bank issue had undermined investor trust,” according to the report. We expected a profits comeback and a return in investor confidence as economic activity picked up, along with a change in management, consolidation, and loan book rejig over the past two years. “Thus, despite management’s vehement denials, the newest salvo at the bank may result in a delayed re-rating,” warned Nomura.
CLSA stated that the bank’s board has been getting anonymous allegations since September-October 2021, with Rao, Bharat Financial’s ex-vice chairperson, stressing the risk.
IndusInd had a poor track record of asset quality guidance during the IL&FS period, and while the new CEO has earned confidence over the last 18 months, CLSA believes that disclosures should have been more proactive in this case.
What does it mean when a loan is “evergreened” or what is loan evergreening?
The practice of evergreening loans, in which banks resurrect a debt on the verge of default by granting more loans to the same company, is well-known.
Evergreening has well-known consequences: a short-term decrease in reported defaults, followed by an ultimate explosion in default rates
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