Two of three banks’ asset quality figures diverge from RBI’s: Icra
Asset quality of two out of every three banks that published their annual reports has diverged sharply from Reserve Bank of India (RBI) assessments, rating agency Icra Ltd said.
The total divergence for 15 banks which have so far reported these divergences, amounts to Rs32,741 crore, or about 14.3% of their reported gross non-performing assets for 2015-16.
These banks had reported a combined net profit of Rs9,764 crore in 2015-16. If they had provided more for these bad loans per RBI assessment, it would have wiped off Rs7,831 crore from the reported net profit number.
Yes Bank reported the highest divergence ratio among the 15 banks. The other names in the list include ICICI Bank Ltd, Bank of Maharashtra, Jammu & Kashmir Bank Ltd and Allahabad Bank. Yes Bank had reported gross bad loans of Rs748.98 crore at the end of March 2016 compared with Rs4,925 crore assessed by the central bank.
The regulator told banks to make a disclosure in the “notes to accounts” if the additional gross NPAs identified by RBI under its asset quality review were greater than 15% of the incremental gross NPAs for the period.
Banks such as Yes Bank, ICICI and Axis have previously said that their financial numbers for fiscal 2017 fully accounted for the impact of this divergence.
“We have to see trend in divergence, in order to determine chronical trend. There will be one more year of divergence, till the time recovery starts to take shape,” said Suresh Ganpathi, analyst at Macquarie Capital. On 29 May, Mint reported that the Institute of Chartered Accountants of India (ICAI) has written to RBI seeking information on the divergence in bad-loan estimates by some lenders and the central bank.
According to Icra, asset quality pressures are expected to continue due to resolution under various schemes, apart from the increasing demand for waiver of farm loans.
The rating agency noted that the core equity capital levels of public sector banks continued to weaken with common equity tier one levels of 8.60% (of risk-weighted assets) as on 31 March 2017 compared to 8.74% on 31 March 2016.
According to Karthik Srinivasan, group head of financial sector ratings at Icra, banks having government holding less than 60% and ones where capital requirement is greater than market capitalization, will be highly dependent on government to meet the regulatory capital requirements.
IDBI Bank breached the common equity tier one ratio at the end of March 2017. As per Basel-III norms, it should be 6.75%, but the bank reported a figure of 5.64%. RBI has put IDBI Bank under prompt corrective action framework (PCA) which will impose restrictions on lending and others to improve the financial health.