Banks want bad loan mismatch disclosure postponed till 2018

The move is aimed at bringing greater transparency in reporting the financial numbers

After the Reserve Bank of India (RBI) asked commercial banks to disclose any mismatch on bad loans and provisioning in their financial statements, bankers have requested that this be postponed till January 2018.

In its policy review this week, the regulator has observed that there are divergences between what banks report on bad loans and provisioning as compared to what RBI supervisors report, and that mismatch needs to be disclosed in the financial statements. While RBI has not gave any timeframe on when this will be implemented, it has said instructions will shortly be issued.

It is often the case that the numbers a bank reports on non-performing asset provisioning for a particular quarter is often disputed by RBI supervisors during annual financial inspection. If a bank is not able to convince the supervisors about the accuracy of the numbers it has reported, it has to revise the figures as advised by the supervisors.

As a part of its supervisory process, RBI assesses compliance by banks with extant prudential norms on income recognition, asset classification and provisioning (IRACP). "There have been divergences between banks and the supervisor as regards asset classification and provisioning,” RBI had said in the review on Tuesday.

Adding: “To bring in greater transparency, better discipline with respect to compliance with IRACP norms, as well as to involve other stakeholders, RBI will mandate disclosures in the notes to accounts to the financial statements of banks where such divergences exceed a specified threshold.”

Chief executives of banks who met the RBI governor after the policy announcement on Tuesday had requested this mandate be postponed till January 1, 2018, which is when the new International Financial Reporting Standard (IFRS) comes into force.

“The disclosure (divergence between bank and supervisory reports) is a part of the IFRS mandate. We need time to prepare for the new regime. So, we have requested the regulator for more time to comply with the new norms,” said a banker who attended the meeting with the regulator.

The move is aimed at bringing in greater transparency in reporting the financial numbers. The lack of this has often resulted in lack of investor interest, particularly in the case of public sector banks. Most banks’ stocks are trading at a discount to their book value.