Bankers are flummoxed by RBI’s warning to YES Bank for making public its zero divergence in NPAs in the fiscal 2018. The RBI’s harsh view of YES Bank’s move has confused lenders on whether it is a good practice to disclose NPA divergence, even though regulatory guidelines make it compulsory to disclose it in their notes to accounts.
“The RBI’s reprimand to YES Bank is strange because banks have been making their NPA divergence numbers public. We are still trying to figure out what it means for us because there has been very rarely such harsh public communication by the central bank,” said a top risk officer at a private sector bank. The assessment of divergence is based on information shared with banks followed by meetings of RBI officials with bank executives in the bank’s premises. A draft report is shared with banks which they can study. These meetings culminate with a supervisory meeting chaired by an RBI executive director in the RBI to take the bank’s views before the final report is prepared.
RBI has not taken kindly to YES Bank’s off-results declaration. “NIL divergence is not an achievement to be published and is only compliance with the extant Income Recognition and Asset Classification norms. The RAR identifies several other lapses and regulatory breaches in various areas of the bank’s functioning and the disclosure of just one part of the RAR is viewed by RBI as a deliberate attempt to mislead the public,” RBI said. The banker cited above said the RBI report highlights the governance, credit risk and operational risks for a bank. “This communication is confidential between the bank and RBI. It is possible that YES Bank has been pointed out lapses on that front which it ignored. But it is true that divergences have been declared by other banks recently,” he said. A Jefferies analyst said RBI’s harsh view could be an attempt by the RBI to defend its decision not to extend CEO Rana Kapoor’s term by alluding to lapses, despite giving a clean chit on NPL divergence. “But we do not view its disclosure as out of line with peers. ‘Nil’ divergence is a major positive and ticks an important box in terms of investment rationale,” Jefferies said.
Source- Economic Times.