Analysts Cheer ‘Lower Divergence’ In Bad Loans At ICICI Bank

Private sector lender ICICI Bank Ltd.’s assessment of bad loans differed from that of the regulator’s, but not by as much as peer lenders Axis Bank Ltd. and Yes Bank Ltd. Analysts cheered this ‘lower divergence’, pushing up the bank’s stock by 2.1 percent in trade on Thursday.

Disclosures made by ICICI Bank in its annual report showed that the lender had pegged gross non performing assets (NPA) at Rs 26,221 crore for the year ended March 31, 2016. The Reserve Bank of India (RBI), however, assessed bad loans at Rs 31,326 crore. The resultant divergence stood at Rs 5,104 crore, or 19 percent of the reported gross NPA.

Following a circular from the RBI on April 18, all banks have been asked to disclose any material difference in their assessment of bad loans and that of the regulator’s. This is being done to “ensure greater transparency and promote better discipline”, said the RBI in its circular. It added that if there is a divergence greater than 15 percent of the published NPAs, the bank must disclose.

“There have been instances of material divergences in banks’ asset classification and provisioning from the RBI norms, thereby leading to the published financial statements not depicting a true and fair view of the financial position of the bank,” said the RBI to explain the need for such a step.

Since the date of the circular, a handful of banks have disclosed this divergence. Some like State Bank of India said the divergence wasn’t material and hence did not need to be disclosed. Others like Axis Bank and Yes Bank have disclosed a significant divergence.

Yes Bank, in its annual report, revealed that it had reported gross NPAs worth Rs 748.9 crore as on March 31, 2016, while the RBI pegged the gross NPAs at Rs 4,925.6 crore. The stock took a beating after the disclosure.

Also Read: Should Yes Bank Have Told Investors About The NPA Divergence Before Its QIP?

In the case of Axis Bank, the divergence in fiscal 2016 stood at Rs 9,480 crore, the bank told analysts in a conference call after its March 2017 earnings. Axis Bank had reported gross NPAs of Rs 6,087 crore in FY16.

In the case of ICICI Bank, the divergence is much lower and in line with what the management had disclosed, said an analyst.

“ICICI Bank’s divergence is in-line with the disclosures in the fourth quarter conference call and lower than Yes Bank & Axis Bank,” said Darpin Shah, analyst at HDFC Securities. The brokerage house has a buy rating on the ICICI Bank stock.