Mumbai: India’s largest lender, State Bank of India (SBI), underreported bad loans and their provisioning by ₹11,932 crore and ₹12,036 crore, respectively, in 2018-19, the Reserve Bank of India (RBI) has found, the highest such figures reported by any bank so far for the last fiscal.
In a stock exchange filing on Tuesday disclosing the central bank’s risk assessment report, SBI said had it taken into account the provisions based on RBI’s findings, the bank would have reported a net loss of ₹6,968 crore in 2018-19 instead of its reported profit of ₹862 crore.
However, SBI said the remaining impact on the gross non-performing assets (NPAs) in the third quarter of 2019-20 is ₹3,143 crore, since some of it has already been recognized in the first two quarters of FY20. Likewise, the remaining impact on provisioning during Q3 FY20 is ₹4,654 crore.
Earlier, SBI had reported its highest bad loan divergence of ₹23,239 crore for 2016-17.
In 2017, the central bank directed banks to disclose the extent to which their assessment of NPAs and their provisioning diverged from that of RBI, and released guidelines for such classification. In April 2019, RBI mandated banks to disclose information about provisioning divergence, if it exceeded 10% of a bank’s pre-provisioning profit. Banks were also directed to disclose information if additional NPAs were more than 15% of reported NPAs. The divergences were disclosed in notes to accounts in annual financial statements following the RBI directive.
In October, the Securities and Exchange Board of India directed publicly-traded banks to disclose such divergences within a day of receiving the final report from the banking regulator, tightening norms for asset quality disclosures.
According to Anil Gupta, vice president and sector head of financial sector ratings at ICRA Ltd, divergences in terms of gross NPAs for banks have been declining, given that most of the stress in the sector has been recognized.
“However, the banks continue to lag in terms of provisioning for these NPAs and as per our estimates, the divergences in provisioning for public sector banks stood at ₹18,500 crore as of March 2018,” Gupta said. “For FY19, we continue to expect the divergences in gross NPAs to remain low, but there can be elevated level of divergences in provisions in the year ended March 2019.”
Other banks including Indian Bank, Lakshmi Vilas Bank, Union Bank of India, UCO Bank, Central Bank of India and Yes Bank have also reported divergence in their FY19 bad loan numbers.
State Bank of India reported a more than threefold jump in its net profit to ₹3,011.73 crore in the second quarter of FY20 from ₹944.87 crore a year ago. The bank’s asset quality improved, with fresh additions to bad loans nearly halving to ₹8,805 crore at the end of the September quarter, compared to the preceding quarter. Gross NPAs as a percentage of total advances stood at 7.2% in Q2, compared with 7.5% in the June quarter and 9.95% a year earlier. Post provisions, net NPA ratio was at 2.79%, against 3.07% in April-June and 4.84% in the year-ago period.
The idea of reporting divergences was floated by RBI in 2015 and the final guidelines were issued in 2017. In its bimonthly monetary policy statement on 29 September 2015, the central bank said it assesses compliance by banks with extant prudential norms on income recognition, asset classification and provisioning (IRACP). It said that there have been divergences between banks and the supervisor with respect to asset classification and provisioning.
“In order to bring in greater transparency, better discipline with respect to compliance with IRACP norms as well as to involve other stakeholders, the Reserve Bank of India will mandate disclosures in the notes to accounts to the financial statements of banks where such divergences exceed a specified threshold,” it said.