Using CRLIC data, RBI trains guns on plugging gaps in NPA recognition

Annual financial inspection underway

Armed with the latest data on big borrowers, including defaults through the Central Repository of Information on Large Credits (CRILC), the Reserve of India (RBI) is focusing on gaps in recognising bad loans across banks. This is part of annual financial inspection for the year gone by.

According to senior public sector bankers, RBI has begun the annual financial inspection of banks for the year ended 2014-15 and the central bank is relying on inputs from CRILC, which became functional in FY15. If one account treated as non-performing asset (NPA) in one bank, RBI is asking why other banks should treat that account differently.

RBI has set up CRILC to spot financial distress early enough so that prompt steps could be taken for resolution and also to ensure fair recovery for lending institutions. All lenders, including commercial banks and non-banking financial companies, have to furnish credit information on borrowers, who have an aggregate fund and non-fund based exposure of Rs 5 crore and above. The scrutiny has been much stringent in the case of infrastructure accounts. Given the stress and elevated risks of slippage in these accounts, the banking regulator has asked to make higher provisions from the beginning to avoid pressures later on.

A chief executive of a large public sector bank told Business Standard: “What the banking regulator is telling us is the prudent thing to do. But where is the money in current times when banks are already reeling under intense pressure on credit costs? It will also impact the capital adequacy.”

The Banking Regulation Act, 1949 empowers RBI to inspect and supervise commercial banks. The annual financial inspection focuses on statutorily mandated areas of solvency, liquidity and operational health of the bank. The powers are exercised through on-site inspection and off-site surveillance. While compliance to the inspection findings is followed up in the usual course, the RBI top brass addresses supervisory letters to the management of the banks highlighting the areas of supervisory concern that need immediate rectification. It holds supervisory discussions and draws up an action plan, which can be monitored. All these are followed up vigorously, said the chief executive.