Banks may face higher provisioning burden
RBI has identified and sent a list of stressed loan assets to banks after the completion of its annual risk-based supervision in July for the year ended 31 March
Mumbai: The Reserve Bank of India (RBI) has sought details of stressed loan accounts in which banks’ asset classification and provisioning diverge from the norms set by the central bank, according to two top executives of state-run banks.
The regulator has identified and sent a list of stressed loan assets to banks after the completion of its annual risk-based supervision in July for the year ended 31 March. Banks are currently in the process of submitting their response to the regulator on the divergences, the bankers cited earlier said on condition of anonymity.
Mint couldn’t ascertain the number of stressed accounts identified by RBI as each bank has received a separate list.
During the supervision, RBI found that banks have delayed classifying accounts as non-performing assets (NPAs), said the banks cited earlier.
This could mean banks will have to make higher provisions against these loan accounts this financial year.
“There will not be an increase in bad loans this year as most banks have finished bad loan recognition. RBI’s queries are more on the provisioning requirement which banks need to make against some of these accounts,” said one of the two bankers.
RBI had told banks to make a disclosure in the “notes to accounts” if additional gross NPAs identified by RBI under its asset quality review were greater than 15% of the incremental gross NPAs for the period.
Analysts said the impact on profitability due to divergences this year will be less than that of the previous year.
“There can be a marginal rise in provisioning requirement for FY19. However, it will be much lower than what (it) was in FY18. Also, most banks already have provision coverage of 50-60% on overall NPAs,” said Ashutosh Mishra, banking analyst, Reliance Securities.
Last year, banks had reported a sharp rise in bad loan divergences after RBI completed its annual inspection for the fiscal 2016-17. This led to several banks, including State Bank of India, Axis Bank, HDFC Bank and Yes Bank, posting huge losses.
The divergences in NPAs as on 31 March 2017 stood at more than ₹60,000 crore compared with ₹43,500 crore as on 31 March 2016, according to Icra’s estimates.