Some banks are not applying NPA classification rules correctly: RBI
RBI deputy governor N.S. Vishwanathan says disclosure of bad loan divergence has brought in transparency on management of books by the banks
Mumbai: Reserve Bank of India (RBI) deputy governor N.S. Vishwanathan on Wednesday said the central bank has noticed some lenders were not “correctly” following rules on classification of non-performing assets (NPAs).
Responding to queries during a media interaction after the monetary policy announcement, the deputy governor said the disclosure of so-called divergences has brought in transparency on management of books by the banks. Divergence refers to the difference between RBI’s assessment of bad loans and that reported by the lender.
“We have assessed banks’ classification (of loans) based on rules as they are today. And we have found in some cases, they (banks) have not applied rules correctly,” Vishwanathan said.
The deputy governor denied the central bank had changed the “goal post” on divergences. “Divergences based on supervision used to happen earlier as well. What has changed now is the disclosure of such divergences if they are above a certain percentage,” he said, adding that divergences used to happen prior to the asset quality review as well and they are happening even now.
In April, the regulator told banks to make a disclosure in the “notes to accounts” if additional provisioning requirement assessed by RBI exceeds 15% of their net profit.
Further, banks also have to make additional disclosures if the additional gross NPAs identified by RBI under its asset quality review are greater than 15% of the incremental gross NPAs reported.
This has led to a sharp rise in slippages and provisioning by banks.
Axis Bank Ltd, India’s third-largest private sector lender, reported a 182% surge in slippages for the three months to September, compared with the previous quarter. This was after RBI pointed out an under-reporting of Rs5,632 crore worth of assets after conducting its annual risk-based supervision exercise.
Similarly, for Yes Bank Ltd, the central bank’s assessment of gross bad loans was Rs6,355.20 crore more than what the lender had reported at the end of March 2017.
In a 27 October interview with the Economic Times, Shikha Sharma, chief executive of Axis Bank, said the bank had been following asset classification rules but there was an element of subjectivity.
“Yes, we were (following the rules). But if the rules are not black and white and there is an element of judgement, then it ends up in being a point of view. I guess the regulator is looking at fortifying balance sheets of banks or they want us to take a more conservative stance. Will there be further pain? We have said there will be a few more quarters where we may see elevated levels of stress,” Sharma said. She added that going into the next year, the bank should be getting back to a normal credit cost cycle.