Too much is being said about the divergences in the RBI’s assessment of Yes Bank for the last two years. It is not that only Yes Bank had divergence in asset classification norms of RBI.
RBI made a policy change in April 2017 on divergence in asset classification under the IRAC norms and for the first time RBI wanted that banks should disclose the divergence in the assessment of NPAs by the RBI and by banks and certified by the Statutory Auditors. It was not that there was no divergence before April 2017. RBI for long time debated whether to implement the disclosure on divergence. Since there is no provision in the Banking Regulation Act 1949 nor any of the SEBI regulations permit re-writing of Balance sheets except under very rare circumstances, RBI might have therefore decided to adopt the route of disclosure.
As per the information available in public domain, there were more than 15 banks which had divergence in asset classification in FYs 2015 and 2016. In terms of Net Profit Criteria (Additional provision exceeding 15 per cent of the published net profit after tax) the difference varied in the range of 34-501 per cent*** and in the case of Yes Bank it was 34 per cent.
The other method adopted by RBI was Gross NPA viz. Assessed Additional Gross NPAs exceed 15 per cent of the published incremental Gross NPAs for the FYs 2015 and 2016. It is reported that more than 15 banks had the divergence even under this parameter. The divergence was in the range of 20 per cent to 463 per cent***. In the case of IDBI Bank the Additional provision requirement was as high as Rs. 2061 crore*, for Axis Bank it was Rs. 2314 crore** as against only Rs. 858 Crore in the case of Yes Bank.
Divergence in asset classification as per IRAC norms of RBI is a major issue for the Indian banks. Despite Asset Quality Review (AQR) carried out by RBI in 2015 and subsequent actions in F.Y. 2016, the divergence still persists due to obvious reasons. RBI itself seems to be confused on the issue of divergence and they have asked Mr. Y D Malegam who retired as Director, Central Board of RBI to fix the issue. RBI has also announced a graded action against the Statutory Auditors of banks, if found guilty of professional irregularity. It is therefore not proper to put the blame only on Yes Bank.
Sources:
* https://timesofindia.indiatimes.com/business/india-business/gross-npa-divergence-at-rs-6816-cr-by-mar-2016-idbi-bank/articleshow/59573519.cms
** https://protect-eu.mimecast.com/s/R4ijCqYEZi1LzLqMtZW5UV?domain=axisbank.com
*** Apox Number Based on Various Banks Annual Returns
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