The RBI may not issue any fresh licence to the bank unless its "internal problems" are sorted out, sources close the central bank said. IndusInd is, however, yet to open the seven branches for which it had received permission from the RBI quite some time back.

According to industry sources, IndusInd has made Rs 28 crore worth of provisioning in September "under protest". Its gross non-performing assets (NPAs), following the "detection" of the bad loan by the central bank's inspection team, has jumped to 10.63 per cent, and the net NPA to 7.63 per cent. "The additional provisioning will be shown in the 1999 balance sheet," the sources said.

The bank, however, contested the RBI allegation of taking exposure in promoter companies. "IndusInd has certainly lent to some of the Hinduja group companies. However, they are not the promoters of the bank. The bank's exposure to the non-promoter Hinduja group companies could be about Rs 55 crore," the sources said.

IndusInd Bank was promoted by IndusInd Enterprise & Finance Ltd, four Mauritius-based companies and three Hinduja companies operating in India, which include Hinduja Finance and Ashok Leyland Finance. According to the sources, currently, IndusInd Bank has had no exposure to any of these companies.

"There has been an on-going tussle between the bank and the RBI on the issue of taking exposure in promoter companies ever since the inception of IndusInd Bank. The RBI should spell out the definition of promoters. The bank has consulted solicitors' firm Crawford Bailey on this issue," the sources said.

The bank has been forced to provide for Rs 28 crore on account of a sticky loan given to a real-estate developer in Ahmedabad. The RBI has forced the bank to make the provision even though the loan was fully secured and backed by property worth Rs 55 crore, the sources said. IndusInd Band sacked five officials in its Ahmedabad branch in connection with this case.

Meanwhile, IndusInd is going through an internal restructuring. It is downsizing its business as a part of its new strategy of moving away from the volume-driven approach. There could be reshuffle at the top level as well. Its executive director (operations and development) SD Wadirkar quit early this month.

IndusInd Bank has reduced its deposit base by Rs 250 crore, and advances by Rs 473 crore in the first eight months of the current fiscal. It wants to continue with the twin objective of downsizing the deposit base and reducing the cost of deposits to push up the spread on advances. The bank is also prepared to play the game of narrow banking, if the situation demands.

This marks a paradigm shift from the bank's original strategy of going in for wholesale deposits and financing big corporates. It has slashed its exposure limit to any corporate group by over 300 per cent from 70 crore to Rs 20 crore.

INSIGHT

RBI must define promoter

The RBI's stand on issuing bank licences is well known, and corporate groups have been targeted in the past. Certain large groups have been denied licences owing to the fear that funds will be diverted to group companies. In this light, the charges against IndusInd Bank raise a vital issue of whether or not banks can lend to their promoters. In this case, of the amount lent to the promoters, not a single rupee represents bad assets. The central bank should be clear about who can be called a promoter. If the RBI wants, it can at best set a limit on exposures a bank can take in its promoter companies. After all, if public-sector banks can lend to the Government, then why shouldn't private-sector banks lend to sound companies managed by their promoters.