FY16 bank financials may look different after the latest RBI circular
The guideline of RBI, while the Asset Quality Review (AQR) that had implemented from 2015 September lead to higher recognition of bad assets with lower profitability in the fiscal year 2015-2016 (FY16) for most of the banks, the latest RBI circular could reveal some more bad news for the industry.
Tuesday, the central bank asked banks to reveal more regarding non-performing assets, provisions and net profit in “notes to accounts” in their annual financial statement. This is to obey with RBI’s prudential norms on income recognition and for the asset classification and provisioning (IRACP) as a part of its supervisory processes.
The RBI had asked all the banks to report the divergence between the reported numbers and RBI assessed numbers for Net NPA, Gross NPA, provisions for NPA and net profit after tax (PAT) for the FY16 in the notes to accounts of financial statements for the year ended March 2017 (FY17).
Banks disclose the additional provisioning requirement that is assessed by RBI exceeds 15% of the published net profit for the reference period or if more GNPA is identified by RBI surpassing 15% of the reported incremental GNPA. The disclosure will be made under the sub-head Asset Quality.
This will be interesting to see if the guideline will highlight NPAs that were un provided for and after making provisions like this will lets us know how the earnings of banks were looked like. Whereas the public sector banks lead the obedience with the AQR programme, the private sector counterparts have aggressively started recognizing the bad asset issue in FY17.
2016 March, net NPA and gross of a set of 42 listed banks excluding IDFC bank and RBL bank has almost doubled to Rs 5.9 lakh crore and Rs 3.45 lakh crore correspondingly when is compared to previous year ago. In a sample reported 86% increase in contingencies and provisions, cumulative net profit has declined by 70% y-o-y with as many as 14 public sector banks reporting net loss for the year.