Detailed Narrative
Board and Management Actions on Irregularities
The Board acknowledged significant irregularities in accounting, governance, and internal controls, including lapses in disclosure and reporting mechanisms. Upon discovery in March, the Board swiftly initiated active steps, including engaging external professional firms for reviews. All identified issues, including suspected fraud and employee involvement, have been reported to regulatory authorities, and legal actions are being pursued to fix accountability. The bank aims to institutionalize ethical best practices and robust systems to prevent future incidents.
Significant Financial Adjustments in Q4 FY25
Q4 FY25 financials absorbed the full impact of identified issues, aiming for a clean slate for FY26. This included reversing Rs.1,960 crores in other income due to derivative discrepancies and Rs.423 crores in revenue from microfinance accounting errors. Unsubstantiated balances of Rs.595 crores were set off, and Rs.760 crores were reclassified from interest income to other income. These adjustments led to a reported loss for the quarter, though the full year FY25 PAT stood at Rs.2,575 crores.
Microfinance Portfolio Under Scrutiny and Corrective Actions
The microfinance segment experienced significant issues, with Rs.1,885 crores in misclassified loans leading to under-provisioning and non-recognition of NPAs. Gross slippages in Q4 for microfinance totaled Rs.3,509 crores, partly due to reclassification of previously miscategorized loans. The bank has implemented MFIN guardrails, restricting disbursements to customers with not more than 3 lenders, and is cautiously watching external factors like state elections and monsoon, expecting normalcy in 6 months.
Business Segment Performance and Strategic Focus
Vehicle loan book grew 8% YoY to Rs.95,595 crores, with Q4 disbursements up 3% YoY. The corporate loan book saw a tactical reduction of 16% QoQ and 6% YoY to build liquidity, but the bank plans to resume selective disbursements. Other retail assets grew 17% YoY, with MSME at Rs.18,232 crores (9% YoY) and Home Loans at Rs.4,491 crores (151% YoY). The bank's strategy is to scale secured retail and MSME assets while being selective in corporate lending.
Resilient Deposit Franchise and Digital Traction
Total deposits grew 7% YoY to Rs.4,10,862 crores, remaining steady QoQ, demonstrating resilience despite recent turbulence. Retail deposits (LCR) grew 9% YoY, contributing 45.1% of overall deposits. The bank maintained strong liquidity with a period-end LCR of 136% and an average LCR of 139% for H1 FY26. Digital initiatives are gaining traction, with 75,000 new clients acquired digitally monthly and the Indie for Business app reaching over 50,000 registered customers.
Leadership Transition and Governance Reinforcement
Following the resignations of the CEO and Deputy CEO, the RBI has advised the bank to submit proposals for a new CEO by June 30, 2025. The Board is at an advanced stage in the selection process, aiming to induct strong leadership with high ethical standards. Concurrently, the bank is undertaking a deep review of systems, controls, and procedures to strengthen transparency and compliance, ensuring a robust governance culture moving forward.