State Bank of India has reported that the Reserve Bank of India found bad loans to the tune of Rs 11,932 crore were under-reported by the country’s largest bank in its annual report for the financial year 2018-19. The provisioning for bad loans that banks are mandated to do in their accounts was short by an amount of Rs 12,036 crore. These are highest figures of this kind for any bank in the past.
The result of this finding is that SBI would have reported a loss of Rs 6,968 crore for the year 2018-19 as against the report of profit of Rs 862 crore it had shown. SBI has clarified that the remaining impact in this financial year will be down to Rs 3,143 crore in the third quarter of the current financial year 2019-20. The corresponding figure for provisioning will be Rs 4,654 crore.
The Reserve Bank of India has been working on more transparency in the reporting by the banks, particularly on NPAs. The stock exchanges have also been growing strict on the reporting of divergences so that the shareholders will be able to make informed decisions on the banks’ stocks traded in the exchanges. The divergence figures represent the ones reported by the banks and the ones observed and recorded by RBI through its supervisors.
The stipulation by the exchanges is that within 24 hours of such divergences being informed to the banks they must inform the stock exchanges. There are threshold limits for these divergences report. It says if the provisioning divergence exceeds 10% of the bank’s pre-provisioning profit, then this has to be reported.
Apart from State Bank of India, the other banks to have under-reported bad loans include Indian Bank, Lakshmi Vilas Bank, Union Bank of India, UCO Bank, Central Bank of India and Yes Bank
The positive factor out of all these is that the overall NPA levels with most banks have been coming down over the recent years. Taking the case of the SBI itself, the bank is reporting a profit of Rs 3,011.73 crore in the July-September quarter of FY20. This is almost three times that of Rs 844.87 crore for the same quarter last year. The net NPA ratio, post provisions, for State Bank of India for that quarter stood at 2.79%, down from 3.07% in the previous April-June quarter. It was 4.84% in the second quarter of last year.
The divergence reporting has been adopted by RBI since 2015 as part of what it calls the IRCAP norms, IRCAP standing for income recognition, asset classification and provisioning.