News Analysis

After Axis and ICICI Bank, RBL Bank’s bad loan divergence irks investors

Radhika Merwin BL Research Bureau | Updated on January 11, 2018 Published on July 07, 2017
Sarpanch Nageswara Rao transacting at the micro ATM sponsored by Oxigen and RBL Bank in the village.

Sarpanch Nageswara Rao transacting at the micro ATM sponsored by Oxigen and RBL Bank in Puttamraju Kandriga near Gudur, Andhra Pradesh.Photo : Bijoy GhoshTo go with Raghuvir Srinivasan's report

Most of these banks have relatively higher exposure to stressed sectors

The stock of RBL Bank fell nearly 2 per cent on Friday, before recovering, after the bank reported bad loan divergences to the tune of Rs 339 crore for FY16. This follows other private banks such as Axis, ICICI Bank and YES Bank that reported sharp divergences for FY16 in their annual report.

The RBI had issued a circular on ‘Disclosure in the Notes to Accounts to the Financial Statements – Divergence in Asset Classification and Provisioning’ in April. This required banks to make suitable disclosures, in instances of material divergences in banks’ asset classification and provisioning from the RBI norms.

Predominantly corporate lenders, these private banks have relatively higher exposure to some of the stressed sectors.

Higher corporate exposure

RBL Bank has been mainly catering to the funding and working capital needs of large corporates and SMEs. While share of this segment has been coming down over the past couple of years, it still contributes around 60 per cent of the bank’s loans.

For Axis Bank, corporate advances constitute 42 per cent of its loan portfolio. Of the current watch list -- key source of future stress in the corporate loan book—60 per cent pertains to the power sector.

For ICICI Bank, its domestic corporate advances constitute about 27 per cent of its loans. Chunk of the bank’s watchlist comprises of loans to stressed sectors such as power, mining and iron and steel.

Sharp divergences

RBL Bank in its annual report, showed GNPAs worth Rs 208 crore in FY16. However, as per the RBI's assessment, the bank's bad loans were Rs 547 crore –a divergence of Rs 339 crore.

High level of divergence has been a concern for other leading private banks. Axis Bank in its annual report stated that loans to the tune of Rs 15,565 crore, according to RBI, should have been declared as GNPAs in the FY16 fiscal. The bank had reported gross NPAs of Rs 6,087 crore—a divergence of Rs 9,478 crore. For ICICI Bank, the bad loan divergence was around Rs 5,100 crore for FY16 as per its annual report.

Yes Bank, in its annual report, showed GNPAs worth Rs 748 crore in FY16. However, as per the RBI's assessment, the bank's bad loans were Rs 4,925 crore –a divergence of Rs 4,176 crore.

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Published on July 07, 2017
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