As part of its efforts to contain rising non-performing assets (NPAs), the Reserve Bank of India (RBI) has started scrutiny of 200 large accounts to assess the level of stress and provisioning done against them by respective banks.
The RBI is examining whether banks have followed prudential norms in respect of these stressed assets, a senior public sector bank official said.
The central bank is also assessing classification, provisioning and debt recast in respect of those loans, the official added.
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, another official said.
Some of the accounts include those of Videocon, Jindal Steel and Power, the official added.
This exercise comes at a time when gross NPAs in the banking system have risen to about ₹10.3 lakh crore, or 11.2 % of advances, compared with ₹8 lakh crore, or 9.5 % of total loans, as on March 31, 2017.
Following the annual inspection of the last year, many lenders, including Axis Bank, Bank of India and Yes Bank, were caught for under-reporting of NPAs.
Under-reported 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.
In most cases, this led to 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.
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 ₹11,000 crore in the two fiscals, while the third largest lender, Axis Bank, was found to have a divergence of more than ₹14,000 crore and ICICI Bank had over ₹5,000 crore on these accounts for FY16 alone.
Last year, RBI had tweaked 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.
