IndusInd Bank's Strategic Move to Auction Microfinance NPAs

In a significant step towards cleaning up its balance sheet, IndusInd Bank has announced plans to auction off Rs 1,573 crore of non-performing microfinance loans. With a reserve price set at Rs 85 crore, the bank has already written down nearly 95% of the value of these loans, highlighting the severity of the situation.

Promoters Increase Stake Pledges

Adding to the bank's strategic financial maneuvers, IndusInd Bank's promoters, IndusInd International Holdings (IIHL) and IndusInd (IL), have pledged an additional 2.78% of the bank's shares, amounting to Rs 2,000 crore. This action increases the total percentage of the bank's share capital pledged by the promoters to 6.86%, a move aimed at bolstering the security for an existing loan facility.

Challenges in the Microfinance Sector

The decision to auction these NPAs comes in the wake of challenges faced by the microfinance sector, including increased risk weightage introduced by the RBI and stress within the sector. IndusInd Bank's MD & CEO, Sumant Kathpalia, has noted the bank's efforts to shrink its microfinance book due to these pressures, which have also impacted the bank's capital adequacy.

With gross non-performing assets in the microfinance sector accounting for 42% of the total gross NPAs, the bank is taking decisive steps to mitigate risks and focus on recovery and stability.