In a disclosure made to the National Stock Exchange of India (NSE), the country’s largest state lender — the State Bank of India (SBI) reported a net loss of Rs. 6,968 crore in the fiscal year (FY) of 2019. However, SBI earlier claimed a net profit of Rs. 862 crore.
The Reserve Bank of India (RBI) found a divergence of Rs. 11,032 crore in the gross non-performing assets (NPA) of SBI.
The RBI found that the gross NPA of the lender was Rs. 1,84,682 crore which is Rs, 11,032 crores more than the reported NPA of Rs. 1,72,750 crore.
The disclosure further specified that the State Bank of India had to make additional provisions of Rs. 12,036 crore for the NPAs, after the central bank’s assessment.
SBI in its comment stated, “after subsequent slippage/up-gradation during the current fiscal year the remaining impact of the gross NPAs during the 3rd quarter (Oct. – Dec.) of FY ’20 is Rs. 3,143 crore.”
Other publicly traded banks have also reported divergence including Union Bank of India, Indian Bank, Central bank of India, and YES Bank.
Among the banks, YES Bank has disclosed the largest divergence in NPAs apropos to the gross NPA assessed by the RBI at 29.4%. SBI’s divergence is 5.97%.
The RBI in 2015 had floated the idea of reporting divergences and by 2017 issued the guidelines for the banks to classify the extent to which their assessment and provisioning of NPAs diverged from the RBI.
The Securities and Exchange Board of India (SEBI), in October, directed the listed banks to report such divergences within a day after receiving the assessment report from the RBI.
The exercise has been undertaken by the RBI to clean up the banking system, as it compels the banks to make provisions for their bad loans/NPAs.
What’s is provisioning for NPAs?
Provisioning is the process of keeping a chunk of the bank’s profit to provide funds for a percentage of their NPAs. Banks give loans to borrowers (asset), if the borrower fails to repay the loans (declared NPA), then the banks keep funds to compensate for the losses.
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