HDFC Bank asked to classify recast loan as NPA by RBI

Its overall gross non-performing assets ratio had been broadly stable at 1.26%, among the lowest for any major lender

HDFC Bank said on Wednesday the Reserve Bank of India (RBI) has asked it to classify a contentious loan which had led to a jump in its provisions in September quarter results declared on Tuesday, as a non-performing asset (NPA).

"The Bank has received communication from the regulator advising it to classify the said account as a non-performing asset. The same has been duly complied with," it said in a statement.

Without divulging any details like the exact exposure and the sector from where the account comes, the bank had Tuesday said that it is a standard account which was performing as per a loan recast approved by a joint lenders forum (JLF) in February 2016 under the 5:25 framework.

"The Bank is in ongoing discussions and correspondence with the regulator in relation to certain observations made on the implementation of the JLF-approved flexible structuring scheme," it had said.

As a prudent measure, it had set aside money as "contingent provisions" against this exposure. Its deputy managing director Paresh Sukthankar had said a majority of the ~397 crore set aside as general provisions was towards this exposure.

Its overall gross non-performing assets ratio had been broadly stable at 1.26 per cent, among the lowest for any major lender. It was, however, not immediately known if the ratio would go up because of this.

The move came within a week of its smaller rival Axis Bank disclosing that RBI had found nine accounts with "divergence", which should have been classified as NPA but were not, in FY17. Axis Bank had classified the nine accounts as NPAs.

Asked if the account pertains to a list of divergences, Sukthankar had yesterday said it may not be fair to call it as a divergence as the bank continues to be in dialogue with the regulator.

It can be noted that many sectors, including steel and power, are under stress for the last few years due to a slew of reasons including sluggish economic growth, regulatory actions of the past and also a slump in global markets.

The RBI is in the process of weeding out all the problem assets and resolving them, so as the books present a true picture of a bank's position.