Sebi-RBI Tightens NPA Divergence Disclosure Norms For All Listed Banks

Mumbai, November 2: The capital market regulator Securities and Exchange Board of India (Sebi) has tightened the norms related to asset quality disclosures for all the listed banks. It has asked all the listed banks to immediately disclose their non-performing loans (NPAs) divergences, with the banking sector regulator the Reserve Bank of India (RBI), after they receive a final report from the Central Bank.

In a circular issued on Thursday, Sebi said, “The listed banks shall make disclosures of divergences and provisioning beyond specified threshold not later than 24 hours upon receipt of the Reserve Bank’s Final Risk Assessment Report (RAR) rather than waiting to publish them as part of annual financial statements."

Sebi said the information about divergences with RBI’s assessment material is price-sensitive, and it is required to be disclosed to the shareholders promptly.   The latest Sebi directive effectively brings an end to listed banks’ dilemma over how they should treat the information on NPA divergence.

In April, RBI mandated banks to disclose information about provisioning, if in its assessment the additional provisioning exceeded 10 per cent of a bank’s profit before provision and contingencies. Banks were also directed to disclose information if additional NPAs were more than 15 per cent of their reported bad loans.

Earlier, such divergences in asset classification were being disclosed in notes to accounts in annual financial statements following the RBI directive.

The current Sebi decision is based on the controversy over the disclosures that erupted in June 2017, when the market regulator sought more information with respect to divergences and provisioning from three listed Banks namely Axis Bank, ICICI Bank and YES Bank.

A controversy about disclosures began in June 2017 when Sebi sought responses from three banks—Axis Bank, ICICI Bank and Yes Bank—for inadequate disclosures regarding divergences and provisioning.

Yes Bank and ICICI Bank had disclosed NPA divergences of 558 per cent and 19.5 per cent respectively, for 2016-17 in the notes to accounts section of their annual report.

Considering that the new Sebi norms have been announced in consultation with RBI, banks would no longer be able to take refuge under the RBI norms, which is their main regulator.

Interestingly, Yes Bank on February 13, 2019 disclosed that RBI did not find any divergences for 2017-18, which earned it the ire of RBI.

In an exchange filing in February this year, the Bank said it has received a letter from RBI, which noted that the risk assessment report was marked “confidential" and it was expected that no part of it would be divulged except for the information in the form and manner of disclosure prescribed by regulations.