RBI sets trigger for disclosure of bad loans divergence lower
02 April 2019
The Reserve Bank of India (RBI) has lowered the base for disclosure of bad loan divergences lower at 10 per cent from the existing 15 per cent of the company’s profit before provision and contingencies.
This means that the bank should make a disclosure of any additional provisioning that exceeds 10 per cent of its annual profit in the `Notes to Accounts’ to the financial statements - divergence in the asset classification and provisioning
Banks were earlier required to disclose divergences if such provisioning exceeded 15 per cent of net profit after tax.
While the new norms require banks to disclose divergences from prudential norms on income recognition, asset classification and provisioning that exceed certain thresholds, RBI did not change any rules that permit lenders to reveal divergences if the additional gross non-performing asset (NPA) exceeded 15 per cent of the reported incremental gross NPAs.
RBI noted that some banks, on account of low or negative net profit after tax, are required to disclose divergences even where the additional provisioning assessed by RBI is small, which is contrary to the regulatory intent that only material divergences should be disclosed. Therefore, it has been decided that henceforth, banks should disclose divergences, if the additional provisioning for NPAs assessed by RBI exceeds 10 per cent of the reported profit before provisions and contingencies for the reference period, and the additional gross NPAs identified by RBI exceed 15 per cent of the published incremental gross NPAs for the reference period.