FY16 bank financials may look different after the latest RBI circular
While the asset quality review (AQR) guideline of RBI that was implemented from September 2015 lead to higher recognition of bad assets and lower profitability in the fiscal year 2015-2016 (FY16) for most banks, the latest RBI circular may reveal more bad news for the industry.
The central bank on Tuesday asked banks to make more disclosure regarding non-performing assets, provisions and net profit in “notes to accounts” in their annual financial statement. This is to comply with the RBI’s prudential norms on income recognition, asset classification and provisioning (IRACP) that is part of its supervisory processes.
The RBI has asked banks to report the divergence between the reported numbers and RBI assessed numbers for Gross NPA, Net NPA, provisions for NPA and net profit after tax (PAT) for FY16 in the notes to accounts of financial statements for the year ended March 2017 (FY17).
Source: RBI
Banks are also required to disclose whether the additional provisioning requirement assessed by RBI exceeds 15% of the published net profit for the reference period or if the additional GNPA identified by RBI surpasses 15% of the reported incremental GNPA. These disclosures would be made under the sub-head Asset Quality.
It would be interesting to see if this guideline will highlight NPAs that were unprovided for and after making such provisions how the earnings of banks would have looked. While public sector banks lead the compliance with the AQR programme their private sector counterparts aggressively started recognising the bad asset issue in FY17.
In the year ending March 2016, gross and net NPAs of a set of 42 listed banks ( excluding IDFC bank and RBL bank) almost doubled to Rs 5.9 lakh crore and Rs 3.45 lakh crore, respectively compared to a year ago. As the sample reported 86% increase in provisions & contingencies, the cumulative net profit declined by 70% y-o-y with as many as 14 public sector banks reporting net loss for the year.
Chart 2 ( disclosure norms 2)
The central bank on Tuesday asked banks to make more disclosure regarding non-performing assets, provisions and net profit in “notes to accounts” in their annual financial statement. This is to comply with the RBI’s prudential norms on income recognition, asset classification and provisioning (IRACP) that is part of its supervisory processes.
The RBI has asked banks to report the divergence between the reported numbers and RBI assessed numbers for Gross NPA, Net NPA, provisions for NPA and net profit after tax (PAT) for FY16 in the notes to accounts of financial statements for the year ended March 2017 (FY17).
Source: RBI
Banks are also required to disclose whether the additional provisioning requirement assessed by RBI exceeds 15% of the published net profit for the reference period or if the additional GNPA identified by RBI surpasses 15% of the reported incremental GNPA. These disclosures would be made under the sub-head Asset Quality.
It would be interesting to see if this guideline will highlight NPAs that were unprovided for and after making such provisions how the earnings of banks would have looked. While public sector banks lead the compliance with the AQR programme their private sector counterparts aggressively started recognising the bad asset issue in FY17.
In the year ending March 2016, gross and net NPAs of a set of 42 listed banks ( excluding IDFC bank and RBL bank) almost doubled to Rs 5.9 lakh crore and Rs 3.45 lakh crore, respectively compared to a year ago. As the sample reported 86% increase in provisions & contingencies, the cumulative net profit declined by 70% y-o-y with as many as 14 public sector banks reporting net loss for the year.
Chart 2 ( disclosure norms 2)
