India’s markets regulator has asked publicly traded banks to disclose bad loan divergences with the Reserve Bank of India’s assessment within a day of receiving a final report from the banking regulator, tightening norms for asset quality disclosures.
“The listed banks shall make disclosures of divergences and provisioning beyond specified threshold not later than 24 hours upon receipt of the Reserve Bank’s Final Risk Assessment Report rather than waiting to publish them as part of annual financial statements," the Securities and Exchange Board of India (Sebi) said on Thursday.
Terming the information about divergences with RBI’s assessment material and price-sensitive, Sebi said it required prompt disclosures to shareholders. The latest directive effectively ends listed banks’ dilemma over how they should handle the information.
In April, RBI mandated banks to disclose information about provisioning, if in its assessment the additional provisioning exceeded 10% of a bank’s profit before provision and contingencies. Banks were also directed to disclose information if additional non-performing assets (NPAs) were more than 15% of their reported NPAs.
Such divergences in asset classification were being disclosed in notes to accounts in annual financial statements following the RBI directive.
A Sebi official said divergences are price-sensitive and need to be communicated to the exchanges at the earliest. “Any delay needs to be explained, and the material divergences ideally from the beginning should have been disclosed to the exchanges as soon as RBI inspection was over. The banks shouldn’t ideally have waited for RBI or Sebi directives," the Sebi official said, requesting anonymity.
A controversy about disclosures began in June 2017 when Sebi sought responses from three banks—Axis Bank, ICICI Bank and Yes Bank—for inadequate disclosures regarding divergences and provisioning.
Yes Bank and ICICI Bank had disclosed 558% and 19.5% divergence, respectively, for 2016-17 in the notes to accounts section of their annual financial statements.
While BSE found the reporting on divergences satisfactory, NSE disagreed.
Yes Bank had then responded to a Mint story published on 2 June 2017, saying that “the divergences identified by RBI, as part of the annual risk-based supervision were advised to be kept confidential".
Considering that the new Sebi norms have been announced in consultation with RBI, banks would no longer be able to withhold such information.
Interestingly, Yes Bank on 13 February 2019 disclosed that RBI did not find any divergences for 2017-18, which earned it the ire of RBI.
In an exchange filing on 16 February, Yes Bank said it has received a letter from RBI, which noted that the risk assessment report was marked “confidential" and it was expected that no part of it would be divulged except for the information in the form and manner of disclosure prescribed by regulations.