RBI says no to rule tweaks despite massive NPA under-reporting by banks

With a slew of banks admitting to under-reporting their NPAs after a regulatory diktat, the central bank on Wednesday clarified it has not changed any rules and attributed the 'divergences' to the wrong application of the rules by the banks.

"We've assessed banks' classification based on the rules they are today and we've found that in some cases, they have not applied those rules correctly," deputy governor NS Vishwanathan told reporters at the customary post-policy press conference here this afternoon.

"I want to make it very clear that there is no change in the goalposts' the rules are as they are," he added.

He said the divergences used to happen earlier as well based on inspection of banks' books by the central bank, but what has changed the narrative now is the mandatory disclosure of the divergences.

"What has changed is the transparency we've brought in the form of disclosures in the divergences when they are more than a certain percentage," he said.

The lenders started reporting divergences since this June for having under-reported NPAs in FY16. This was followed by a second round of disclosures starting October of underreporting in FY17 by a few lenders.

In most cases, this led to a 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-run 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 Rs 11,000 crore in the two fiscals, while the third largest private sector lender Axis Bank was found to have a divergence of over Rs 14,000 crore, and ICICI Bank had a divergence of over Rs 5,000 crore for FY16 alone.

In first half of the 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) the previous year and was followed by instructions to resolve 40 largest NPAs under the Insolvency & Bankruptcy Code.