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Current Affairs

RBI tightens NPA disclosure norms

Date: 03 April 2019 Tags: Banking Laws & Regulations

The Reserve Bank of India (RBI) has changed bad loan disclosure norms for banks on material divergences on provisioning. The original rules on non-performing assets (NPA) and provisioning divergence was notified in April 2017. These rules were aimed at improving transparency in asset classification. Under it, banks have to report their NPA divergence.

Changed Rules

  • Assessed NPAs: Banks will now have to disclose their provisions if divergence of assessed NPAs is found more than 10% of bank’s profit before provisioning and contingencies.
  • Earlier, banks were required to disclose additional provisioning requirements if divergences were found to be exceeding 15% of published net profits after tax.
  • Gross NPAs: The second norm on divergence on gross NPAs will continue to be same if material divergence of 15%, as found by RBI auditors and as reported by bank.

Background

The new tighten rules comes after it was found that some banks, on account of low or negative net profit after tax, are required to disclose divergences even where additional provisioning assessed by RBI was small. This was contrary to the regulatory intent that only material divergences should be disclosed.

The change in norms may result in few banks, particularly those making losses, being spared from disclosing provision divergence.  However, if bank is found to be having material divergence on NPAs, then it will mandatory for it to report deficiency in provision as well as the bad debt. The new tweaked rules are part of RBI’s plan to allow loss-making banks to go easy on their disclosure.