Divergence Report On Bad Loans

It is mandatory that the Provisioning and Non-performing assets of banks should not exceed 15 per cent of their published financial figures.  SEBI (Securities and Exchange Board of India) has now asked banks identified for the purpose to make a discreet statement on provisioning and non-performing assets (NPAs), wherein the same has exceeded 15 per cent of their published net profits after tax for a particular reference period.

The deviation in the amount of asset classification and provisioning is required as per RBI guidelines which has been stressed by SEBI.  The issue of deviation in the provisioning has come to notice after RBI noticed that there was difference in the numbers declared and that was estimated.  Thus, a material deviation is observed in the asset classification and provisioning.  In turn this has resulted in the Financial statements not showing the bank’s correct financial position.  Disclosure of correct information is insisted by RBI due to the following reasons:

  • It ensures greater transparency
  • It results in a better discipline with regard to compliance on Income Recognition, Asset classification and provisioning norms.

We might recall that RBI has insisted for disclosure on deviation, to Stock Exchanges, with the following instructions:

“The banks shall disclose to the stock exchanges divergences in the asset classification and provisioning wherever: the additional provisioning requirements assessed by the RBI exceed 15 per cent of the published net profits after tax for the reference period; and/or the additional gross NPAs identified by the RBI exceed 15 per cent of the published incremental gross NPAs for the reference period”.

 

 

Author: Admin Bankedge

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