No change in norms RBI defends inspection regim

No change in norms RBI defends inspection regim

The Reserve Bank of India defended its inspection regime and said that the divergence between the actual numbers reported by the banks and its assessment of bad loans is nothing extraordinary, and it is not moving the goal post. The only difference now, the central bank asserted, is that banks are disclosing these numbers, unlike in the past.

Speaking for the first time on the issue of banks reporting huge divergences at the end of the September quarter earnings, the Reserve Bank of India on Wednesday said that the banks had not followed RBI’s asset classifications rules to the tee. “I want to make it very clear that there has been no change in the goal post, the rules haven’t changed,” said NS Vishwanathan, deputy governor, RBI. “We have assessed the banks classification on rules as they are today. We have found that in some cases, they have not applied those criteria.”

The RBI’s scrutiny of non-performing assets has raised several concerns on how asset classification is being done by banks and its auditors. Three private sector banks have in all reported over Rs 12,000 crore in asset classification divergences for FY17 so far.

Yes Bank BSE 1.71 % reported a divergence of Rs 6,355 crore for FY17, while this number was at Rs 4,177 crore for FY16.
Yes Bank is not the only one though; even the gold standard in Indian banking HDFC BankBSE 0.53 % had to bear the brunt of the regulator’s audit when it was directed to classify a standard account to NPA category.

Another private sector lender Axis BankBSE 0.73 %, which is currently struggling under the burden of its legacy infrastructure loans, reported a divergence of Rs 5,633 crore for FY17 while this was at Rs 9,480 crore for FY16.“We are obedient children, they (RBI) told us do it, we did it,” said Shikha Sharma, chief executive, Axis Bank, in an interview to ET in October this year.

“We have taken the pain of doing what they told us to do. These cases are not even NPAs with the lead banks. What we are saying is that we were not trying to hide anything. We are not even the lead bank in these cases.”But the market, investors and experts are seeing these divergences as not only negative surprises but also a question mark on the management’s and its auditor’s inability to properly assess stress in the company’s portfolio.

“Divergences on the basis of inspection used to happen in the past as well, what has changed is the transparency that we have brought in the form of disclosure of divergences when they are more than a certain percentage, that has changed the narrative,” Vishwanathan explained.

The Economic Times, New Delhi, 7th December 2017