Sebi asks banks to disclose divergence in asset classification

Key Highlights: 

• Banks will have to disclose any divergence in the asset classification
• Disclosures to be made in the notes ensuing annual financial statements of banks
• RBI says, there have been instances of material divergences in banks’ asset classification 

The Securities and Exchange Board of India (Sebi) on Tuesday introduced new measures for banks in cases like divergence in the asset classification and provisioning. 

Sebi mentioned that notification requires the disclosures to be made in the notes to accounts in the ensuing annual financial statements published immediately following communication of such divergence by RBI to the bank. 

According to Sebi, banks are needed to disclose to the stock exchanges any divergence in the asset classification and provisioning in two cases. Firstly, when the additional provisioning requirements assessed by the RBI exceed 15% of the published net profits after tax for the reference period.  Secondly, the additional gross NPAs identified exceeds 15% of the published incremental gross NPAs for the period. 

Disclosure shall be placed as an annexure to the annual financial results filed with stock exchanges in accordance with clause (d) of sub-regulation (3) of Regulation 33 of Sebi. These disclosures shall be made along with annual financial results filed immediately following communication of such divergence by RBI to the bank. 

Stock exchanges are advised by Sebi to bring the provisions of this circular to the notice of banks.

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RBI, in April 2017 said, "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.” 

Later in May 2017, three private banks disclosed divergence in non-performing assets. 

Yes Bank, in its financial report, showed gross NPAs worth Rs 748.9 crore in FY16. However, as per the RBI's assessment, the bank's bad loans were worth Rs 4,925 crore – which would mean a divergence of Rs 4,176.7 crore. 

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Similarly, Axis Bank which reported Rs 6,087.5 crore of gross NPA in FY16, recorded a divergence of Rs 9,478 crore.  ICICI Bank reported Rs 26,221 crore in FY16 – a divergence of Rs 5,105 crore during the period.

Market regulator since the last two months have been issuing various measures for banks as a helping hand to the government and RBI who are trying to resolve over Rs 7 lakh crore of stressed assets. 

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