Banks will be able to recognise their stressed assets as non-performing more uniformly with an RBI directive calling for extra disclosure on asset categorisation, India Ratings (Ind-Ra) said.
The Reserve Bank (RBI) has asked banks to make additional disclosure on divergence in asset classification and provisioning. This is being done to improve governance and smoothen transition to Indian Accounting Standards (IND-AS 109), India Ratings and Research (Ind-Ra) said in a note.
“The additional disclosure requirements for banks would compel banks to tighten their internal non-performing loans (NPLs) recognition and provisioning norms,” it added.
“It will improve the overall quality of disclosures and provide a platform for more uniform recognition of stressed assets as non-performing across different banks.” Migration to IND-AS 109 is likely from the next year, and the proforma numbers are to be released from June 2017 onwards.
“The new accounting standards would require provisioning based on expected loss replacing the current incurred loss provision. The blanket higher provisioning, however, generally seems to have been prescribed for meeting a larger objective and is not necessarily limited to credit risk,” Ind-Ra senior analyst Udit Kariwala said.
In April, RBI had flagged concerns about banks’ exposure to various sectors, including telecom, real estate lending, unhedged foreign and capital market exposure, among others. However, the proposal for an increased provision on sectoral exposure in anticipation of credit losses may achieve the objective only partially, it added.