IndusInd Bank Crisis: Microfinance Unit Sees More Exits As Bank Representatives Step Down — Profit Exclusive

IndusInd Bank’s microfinance arm Bharat Financial Inclusion Ltd is seeing more exits, as officials appointed by the bank step aside. The exits follow enhanced scrutiny into the bank's microfinance book, following disclosures of incorrect balances and poor provisioning.

According to two people with direct knowledge of the matter, Vikas Muttoo, chief operating officer and head of member services, has already resigned. Alongside Muttoo, his joint COO Anujeet Varadkar has also quit Bharat Financial Inclusion, the people said.

Muttoo, who was previously with RBL FinServ, joined Bharat Financial Inclusion in 2023. He has been one of the chiefs appointed by IndusInd Bank to run the microfinance division, the people quoted above said.

Similarly, Varadkar, former MD & CEO of Svatantra Microfinance, joined Bharat Financial Inclusion only in 2024. He was brought in to right-size operations at the microfinance division after it started showing significant turbulence, the people quoted above said.

Last month the company’s Executive Vice Chairman J Sridharan quit, NDTV Profit had reported.

The company has now promoted Gopi Krishna A as its head of member services. Gopi Krishna is a long-time employee of Bharat Financial Inclusion, formerly SKS Microfinance, having worked at the microfinance company for nearly 20 years. IndusInd Bank had acquired Bharat Financial Inclusion in 2019.

Queries sent to IndusInd Bank were not immediately responded to. This story will be updated with comments once they are received.

All three high-profile exits at the microfinance company come after the bank initiated an audit of the portfolio, led by the internal audit team and with EY supporting the investigation. The audits have followed incorrect balances found in the microfinance business.

According to details released by the bank during the March 2025 quarter, the microfinance business recorded incorrect interest income worth nearly Rs 674 crore and incorrect fee income worth nearly Rs 173 crore. Moreover, owing to incorrect classification of loan accounts, the bank has had to make additional provisions worth around Rs 2,000 crore.

This is not the first time that issues have been detected in the microfinance unit. In 2021, IndusInd Bank reported that a whistleblower had alleged improprieties in Bharat Financial Inclusion. This included allegations of evergreening at the microfinance unit.

At the time the bank had denied these allegations; however, it did report that a faulty tech patch deployment led to the opening of 84,000 loan accounts without proper customer consent. An audit followed these events; however, nothing came out of it.

As of March 2025, the bank reported microfinance loans worth Rs 30,909 crore, constituting 9% of the total book. Gross non-performing assets for this business were Rs 4,531 crore or 13.18% of the segment. This rose from Rs 2,432 crore, or 7.05%, in the Oct-Dec quarter.

The scrutiny of various books has only risen in the last couple of months, after MD & CEO Sumant Kathpalia quit the bank on April 29, while his deputy Arun Khurana resigned a day earlier. Their exits were due to an audit conducted by consultancy firm Grant Thornton Bharat into the derivative accounting issues, which was ordered by the board of the bank.

On March 10, the bank had first disclosed that there were certain issues in its derivatives accounting book, which had led to a financial hit of approximately Rs 2,000 crore.

Later an interim investigation report by the Securities and Exchanges Board of India found that Kathpalia and Khurana knew of the derivatives issue back in December 2023. By February 2024, the bank's top brass were already aware of the financial hit these issues would lead to. Rather than inform shareholders about the issues, both Kathpalia and Khurana were dumping their shares in the market. The market's regulator is still investigating insider trading violations at the bank, among other issues.