Rbi Picks Holes In Indusind Banks Asset Provisioning

IndusInd Bank has made an additional provision of Rs 29.22 crore towards substandard assets from the profit retained during 1998-99. As a consequence, the profit of the previous year would technically come down from Rs 36.80 crore to Rs 7.58 crore for 1998-99.

This was indicated in the bank's annual report to the shareholders for fiscal 1999-2000.

This also implies that the bank has shown a massive jump in the net profit for 1999-2000 to Rs 56.09 crore.

Explaining the rationale behind the move, bank sources said the Reserve Bank of India's inspection report for 1998-99 disagreed with the asset classification norms reported by the bank. The RBI report indicated that non-performing assets in IndusInd Bank's books were higher than that was projected by it bank.

"Thus RBI asked the bank to make additional provision. However, since the inspection was completed only after November 1999, IndusInd Bank had to make additional provision of Rs 29.22 crore on the retained profit made in the previous year," sources said.

"The management decided to use a part of reserves (amounting to Rs 78.76 crore) for meeting contingencies including asset impairments and accordingly transferred Rs 29.22 crore, being the amount assessed for additional provisioning by RBI for the previous year under the retained earnings in the profit and loss account," said the bank's annual report.

At the same time, the bank's exposure in the sensitive sector has touched 18 per cent of the total advances for the financial year 1999-2000.

The total advances made by the bank were at Rs 3,677.05 crore of which Rs 689.77 crore was towards sensitive sector, as indicated in the balance sheet of the bank for 1999-2000.

Of the Rs 689.77 crore, lending to the capital market stands at Rs 180.06 crore, to real estate at Rs 321.47 crore and to commodities market at Rs 188.21 crore.

According to bank sources, "Huge exposure to the real estate was due to historical factors and the bank has already provided for asset impairment in this sector."

During 1999-2000, the gross NPA of the bank has gone up to Rs 265.30 crore from Rs 223.68 crore in 1998-99. However, due to provisioning made by the bank, the net NPA has fallen from 7.20 per cent of the net advances in 1998-99 to 5.98 per cent in 1999-2000.

The total provisions and contingencies amount to Rs 134.77 crore against Rs 73.64 crore in the previous year.