India’s largest lender State Bank of India is facing the censure of the central bank for understating bad loans. In a regulatory filing, the state-owned bank said that the risk-assessment report of Reserve Bank of India had pointed toward under-reporting of over 119 billion rupees (US$1.68 billion) of non-performing assets.
The divergence in gross non-performing assets assessed by the central bank for SBI in FY19 was over 119 billion rupees. Similarly, the divergence with regard to net NPAs was also over 119 billion rupees.
The central bank also found that State Bank of India had made lower provisions for bad loans in FY19. The divergence found in provisions for bad loans in FY19 was to the tune of over 120 billion rupees.
Based on the divergence assessed by the RBI in provisioning for bad loans, SBI said it would have reported a net loss of 69.68 billion rupees in FY19 as opposed to a profit of 8.6 billion rupees.
The bank reported gross non-performing assets of 1.72 trillion rupees and according to RBI’s assessment it had gross bad loans of 1.84 trillion rupees. The divergence works out to 7% of disclosed gross bad loans.
Similarly, it reported net non-performing assets of 659 billion rupees but RBI’s assessment showed its net bad loans are 778 billion. Provisions made by the bank in FY19 were 1.06 trillion rupees, but it was should have provided 1.18 trillion rupees.
In October the market regulator, Securities and Exchange Board of India, had made it mandatory for listed banks to disclose bad loan divergence within a day of receiving the risk assessment report from the central bank.
Earlier in April, Reserve Bank had mandated banks to disclose information about provisioning divergence, if it exceeded 10% of a bank’s pre-provisioning profit. Banks were also directed to disclose the information if additional non-performing assets were more than 15% of the NPAs they reported.
Such divergences in asset classification were being disclosed in notes to accounts in annual financial statements following the RBI directive.
Other banks, including Indian Bank, Lakshmi Vilas Bank, Union Bank of India, UCO Bank and Yes Bank also reported divergence in FY19 bad loans numbers. The highest divergence was of Yes Bank: 32 billion rupees or 41% of the reported gross non-performing assets.
For the year ended March 2019, State Bank of India reported a net profit of 8.6 billion rupees after reporting losses in the last two years, helped by higher net interest income and improvement in asset quality. The state-owned lender’s net interest income increased 18.03% to 883 billion rupees in FY19 as against 748 billion rupees in the previous year.