In a bid to curb the increasing volume of non-performing assets (NPAs), the Reserve Bank of India (RBI) has initiated scrutiny of 200 large stressed accounts in various banks across the country. Under this process, RBI will analyse the level of stress created by these accounts and the provisioning that must be done by the respective banks against these accounts.
According to an official from RBI, this process will include classification, debt recast, and provisioning of these identified stressed assets. The assessment would also focus on determining whether the lenders have followed the prudential norms while issuing loans to these borrowers.
Another official stated that this process is a part of RBI’s annual inspection of banks and their account books at the close of a financial year. Some of the major accounts analysed under this process include Jindal Steel & Power, Videocon, etc.
As of March 2018, NPAs in Indian banks totaled Rs.10.25 lakh crore, which represents 11.2% of advances. This is significantly higher than the Rs.8 lakh crore NPAs reported in March 2017. The alarming rise of NPAs also made the government come up with a recapitalisation plan worth Rs.2.11 lakh crore for state-owned banks.
An amendment made to RBI rules last year made it mandatory for all banks in the country to disclose their under-reported bad loans. During last year’s inspection, many banks including Yes Bank, Axis Bank, ICICI Bank, and Bank of India were found guilty of under-reporting their NPAs. In the private sector, Yes Bank was found to have under-reported NPAs by about Rs.11,000 crore in FY16 and FY17 combined.
In the fiscal year 2016, Axis Bank under-reported bad loans by about Rs.14,000 crore whereas ICICI bank reported divergence of Rs.5,000 crore. These bad loans affected banks severely due to the need to allocate higher provisions to cover them up. The overall profitability of these banks declined as a result and eroded the wealth of investors.
Source: Times of India