The Securities and Exchange Board of India (Sebi) on Tuesday issued a circular directing all listed banks to report divergences in asset classification and provisioning to the stock exchanges along with their annual reports immediately after it receives a communication from the Reserve Bank of India (RBI) on such divergences. Sebi in its circular said listed banks will have to disclose to the stock exchanges divergences where the “additional provisioning requirements assessed by RBI exceed 15 percent of the published net profits after tax for the reference period and/or the additional Gross NPAs (non-performing assets) identified by RBI exceed 15 percent of the published incremental Gross NPAs for the reference period”.
On April 18, to ensure greater transparency and promote better discipline with respect to regulatory compliance, the RBI has asked banks to make suitable disclosures wherever the additional provisioning requirements assessed by the RBI exceed 15 per cent of the published net profits for the reference period or the additional gross NPAs identified by the RBI exceed 15 per cent of the published incremental gross NPAs.
“There have been instances of material divergences in banks’ asset classification and provisioning from the RBI norms, thereby leading to the published financial statements not depicting a true and fair view of the financial position of the bank,” the RBI had said. Many public and private banks had showed divergence in NPA calculation. Public Sector IDBI Bank’s gross non-performing assets (NPAs) of Rs 24,875 crore in 2015-16 were lower than the Reserve Bank of India’s assessment of Rs 31,691 crore, indicating an under-reporting of Rs 6,816 crore. YES Bank officially reported a gross NPA figure at Rs 750 crore as against the RBI’s assessment of Rs 4,925.7 crore for the fiscal ended March 2016.
Other private sector lenders such as ICICI Bank and Axis Bank have also said the RBI had found NPA divergence in their books. At ICICI Bank, the under-reported gross NPAs stood at Rs 5,105 crore and the additional provisioning requirement stood at Rs 1,071 crore in FY16. Axis Bank told analysts after declaring its Q4 FY17 results that the RBI had found gross NPA divergence of Rs 9,478 crore, thereby taking the total bad loans in FY16 to Rs 15,566 crore.
Sebi’s Tuesday circular on disclosures of divergence in asset classification and provisioning by banks has been issued under regulation 101 of (Listing Obligations and Disclosure Requirements) Regulation, 2015 (LODR). According to LODR norms, all material information needs to be disclosed. Any variation in numbers needs to be qualified (or pointed out) by auditors and this qualification has to be followed by an explanation from the management and the opinion of the auditor.