IndusInd Bank MFI, Unsecured Loans Likely Face Scrutiny Over Lending Norms

According to a Moneycontrol report, IndusInd Bank’s unsecured and microfinance loan practices are under regulatory and internal scrutiny. Lapses related to loan classification and disbursal mechanisms have put ₹6,000-₹7,000 crore worth of loans in question, raising concerns across the financial services sector.

MFI and Unsecured Loans of ₹7,000 Crore Under Investigation

IndusInd Bank is probing internal irregularities in its microfinance institution (MFI) portfolio and small-ticket unsecured loans amounting to ₹6,000–₹7,000 crore. These loans were reportedly extended to family members, particularly husbands, of women MFI borrowers to manage mounting stress in the original loans. This practice was uncovered during recent audits and has since been discontinued.

Contrary to standard norms, some of these follow-up loans may have been misrepresented as agriculture loans. Unlike regular microfinance products, agriculture loans often require annual repayments rather than a structured weekly or monthly schedule, offering temporary relief in terms of overdue categorisation.

Loan Structuring Triggered Regulatory Concern

The alleged practice involved netting off a fresh loan against the outstanding dues of an existing MFI loan, provided to a different individual within the same household. For instance, if a ₹20,000 microfinance loan given to a woman remained unpaid for over 60 days, the bank reportedly issued a larger loan to her spouse and offset the repayment from this new disbursal a roundabout form of evergreening.

Due to the difference in KYC details between the borrower and the spouse, this form of financial engineering was difficult to trace through traditional delinquency tracking systems. The absence of specific guidelines around intra-family lending further complicates regulatory interpretation.

Audit Reveals Faulty Lending and Process Gaps

IndusInd Bank initiated internal reviews in early 2025 after observing high delinquency rates in certain unsecured loans. The bank commissioned EY to audit its MFI operations and forensic firm Grant Thornton to examine internal lending processes, including derivative accounting protocols.

Although the initial concern was linked to derivatives accounting gaps, closer inspection showed deeper challenges in loan origination and classification in the bank’s rural lending portfolio, showcasing systemic issues in credit control and risk mitigation.

Bank’s Response to Allegations

The spokesperson in a media report denied extending loans to men through its microfinance vertical, stating that its products are exclusively designed for women in rural areas. “Women are central to our microfinance business, with products aimed at fostering financial independence,” the spokesperson said.

The bank reiterated that all MFI loans are provided directly to women borrowers to support entrepreneurship and improve household incomes, especially in rural India. However, insiders indicate the review is ongoing, and more findings are expected by the June quarter.

Read More: ITR Filing FY25: Are Taxpayers Taking Full Advantage of Loan-Related Tax Deductions? !

Classification as Agri-Loans Raises Eyebrows

Another point of contention is the classification of some unsecured loans as agriculture loans. Agricultural loans come with regulatory benefits that allow relaxed borrower repayment cycles and favourable provisioning norms. If misused, such classifications can provide temporary reprieve from non-performing asset (NPA) recognition while masking actual risk from financial statements.

This practice could have influenced how the financial impact was reported in the bank’s earnings disclosures. Segmenting microfinance exposure under agricultural headroom potentially distorts asset-quality metrics, misleading investors and regulators alike.

Timeline of Events

The alleged lending discrepancies reportedly took place from early 2024 to around July–August the same year, when the bank actively offered small-ticket loans to offset growing stress in its MFI book. By March–April 2025, signs of rising default rates prompted a detailed internal review, eventually leading to external audits and scrutiny.

The bank’s March FY25 quarter filings noted unusual trends in its microfinance loan performance, prompting further oversight. On May 23, several financial portals flagged MFI-related issues as a growing concern overshadowing even the earlier derivative accounting lapses.

IndusInd Bank Share Price Performance

On June 24, 2025, IndusInd Bank Limited share price opened at ₹851.00 on NSE, above the previous close of ₹839.90. During the day, it surged to ₹852.00 and dipped to ₹823.80. The stock is trading at ₹832.30 as of 10:16 AM. The stock registered a moderate decline of 0.90%.

Over the past week, it has declined by 2.14%, over the past month, it has moved up by 1.41%, and over the past 3 months, it has moved up by 24.33%.

Conclusion

IndusInd Bank’s microfinance and unsecured lending issues reveal deep-rooted concerns in credit assessment and compliance mechanisms. As ₹6,000-₹7,000 crore worth of loans come under the spotlight for potential misclassification and structural anomalies, the bank’s audit infrastructure and internal controls are undergoing much-needed repair. The fallout from this internal investigation is expected to extend into the June quarter, impacting IndusInd’s earnings visibility and market perception.

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