RBI puts 200 stressed accounts under scanner to contain NPAs

16 Aug 2018 Evaluate

In a bid to contain rising non-performing assets (NPAs) in the country’s banking system, the Reserve Bank of India (RBI) has started scrutiny of 200 large accounts to assess level of stress and provisioning done against them by respective banks. The RBI is examining if the banks have followed prudential norms in respect of these stressed assets. It is also assessing classification, provisioning and debt recast in respect of those loans. This is a part of regular annual inspection of book of the banks that the central bank undertakes each year after the closure of the financial year. This exercise comes at a time when gross NPAs in the banking system has risen to around Rs 10.3 lakh crore, or 11.2 percent of advances, compared to Rs 8 lakh crore, or 9.5 percent of total loan, as on March 31, 2017.

After the annual inspection previous year, many lenders, including Axis Bank, Bank of India and Yes Bank, were caught for under-reporting of NPAs. The lenders started reporting divergences since June last year for having under-reported NPAs in FY16. This was followed by a second round of disclosures, starting October, of under-reporting in FY17 by a few lenders.

Private sector lenders, which were reputed for their caution on the asset quality front vis-a-vis the poorly governed state-owned peers, were the worst hit in this exercise. Among others, mid-sized private sector lender Yes Bank was found to have under-reported gross NPAs by a whopping Rs 11,000 crore in the two fiscals, while the third largest lender Axis Bank was found to have a divergence of over Rs 14,000 crore and ICICI Bank had over Rs 5,000 crore on these accounts for FY16 alone.

In most cases, this led to a shooting up of NPAs and an ensuing jump in provisions against dud assets. This eroded their bottomlines, and led to a sell-off in the stock causing erosion of wealth for investors. Last year, RBI had jerked the rules to make it compulsory for lenders to disclose under-reporting of bad assets. Before this there was a massive book clean-up through the asset quality review (AQR) in the previous year.

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