RBI’s Loan Classification Numbers Mismatch

RBI’s which has gone through the  non-performing assets of banks has raised questions on the manner in which classification is being done by bank auditors. Three private-sector lenders have together reported more than Rs 12,000 crore in asset classification divergences for FY 17 so far.Difference in classification of NPA accounts between banks and the regulator came to light after RBI pointed out differences in asset classification and provisioning as on 31 March, after the annual risk-based supervision.

1. This has not only created surprise in the minds of investors but has brought out the inability of managements and auditors to properly assess stress in loan portfolios.
2. For example, Yes Bank reported a divergence of Rs 6,355 crore for FY17, while this number was at Rs 4,177 crore for FY16.  These are referred to be that of the last fiscal year and more so relate to infrastructure and related sectors, as per bank’s contention.
3. HDFC Bank has been advised by the regulator, to move a standard account to the non-performing asset (NPA) category.
4. Also,  Axis Bank, which is now facing the burden of its legacy infrastructure loans, reported a divergence of Rs 5,633 crore for FY17, while this number was at Rs 9,480 crore for FY16.  Taking the benefit of doubt, the bank adds that it has not classified them under NPA.
5. One more bank, viz ICICI Bank had reported a divergence of Rs 5,104 crore in FY16 which is attributed to the individual bank issue.
6. Further RBI is likely to question on the provisioning methodology and NPA figures which they have arrived at .  The companies involved are BSR & Co, an affiliate of KPMG India, SR BAtliboi, which is an affiliate firm of EY INdfia.  In the coming days, RBI may question the provisioning methodology and NPA figures arrived at by auditors of the banks, say people in the know. ICICI bank and Yes Bank are audited by BSR & Co. Deloitte Haskins & Sells is HDFC Bank’s auditor, and SR Batliboi is the auditor of Axis Bank.

Auditors however feel that these were expected and that RBI would be knowing about these accounts status better and the difference could be due to difference in time lag between the preparation of accounts and RBI inspection time.  Also it is felt that the new accounting standards and the change in the Indian accounting system to IND-A S inline with the International Financial Reporting Stands w.e.f April 1, 2016 has been another reason.