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Dec 06, 2017 06:30 PM IST | Source: Moneycontrol.com

NPA divergence disclosures meant to increase transparency, rules remain same: RBI

After a regulatory diktat, Yes Bank, Axis Bank and those mentioned above had reported divergences in their NPAs worth over Rs 12,000 crore cumulatively for the financial year 2016-17. ICICI Bank, Axis Bank and Yes Bank also reported such divergences in 2016-17.

Beena Parmar @BeenaParmar
 
 
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At a time when top private lenders like ICICI Bank and HDFC Bank were made to disclose the divergences in reporting of non-performing assets (NPAs), the Reserve Bank has said the rules are the same but narrative has changed to bring in more transparency.

After a regulatory diktat, Yes Bank, Axis Bank and those mentioned above had reported divergences in their NPAs worth over Rs 12,000 crore cumulatively for the financial year 2016-17. ICICI Bank, Axis Bank and Yes Bank also reported such divergences in 2016-17.

Many bankers suggested that the new disclosure rules had changed goal posts but the banking regulator today clarified it has not changed any rules and attributed the ‘divergences’ to the wrong application of the rules by the banks.

“We’ve assessed banks’ classification based on the rules they are today and we’ve found that in some cases, they have not applied those rules correctly,” RBI deputy governor NS Vishwanathan told reporters at the customary post-monetary policy press conference in Mumbai.

“I want to make it very clear that there is no change in the goalposts. The rules are as they are,” he added.

NPA transparency

According to him, what has changed is the transparency in disclosures of divergences beyond a certain percentage. “That’s actually changed the narrative,” he said.

The RBI Deputy said that the divergences based on inspection of banks’ books by the central bank happened in the past as well.

Banks started reporting divergences since this June for having under-reported NPAs in FY16. This was followed by a second round of disclosures starting October of under-reporting in FY17 by a few banks.

In most cases, the banks’ NPAs shot up by a large margin leading to higher provisions towards such bad loans impacting their profitability. Lenders such as Axis Bank and Yes Bank saw a major sell-off in their stock causing erosion of wealth for investors.

Also Read: NPA divergences point to a need for bank auditors to have a dialogue with RBI

Impact on private banks

Largely, private sector lenders, which were known to be in the clean-zone as compared to public sector banks made high disclosures of the divergences and hence also bore the brunt thereby affecting their asset quality, like most government banks.

Among others, mid-sized private sector lender Yes Bank was found to have under-reported gross NPAs by a whopping Rs 11,000 crore in the two fiscals, while the third largest private sector lender Axis Bank was found to have a divergence of over Rs 14,000 crore and ICICI Bank had a divergence of over Rs 5,000 crore for FY16 alone.

In first half of the year, RBI had tweaked the rules to make it compulsory for lenders to disclose under-reporting of bad assets. Before this there was a massive book clean-up through the asset quality review (AQR) the previous year and was followed by instructions to resolve 40 largest NPAs under the Insolvency & Bankruptcy Code.
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