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RBI Puts 200 Stressed Accounts Under The Scanner

Reserve Bank of India has started scrutiny of 200 large accounts to assess level of stress and provisioning done against them by respective banks as it looks to contain rising non-performing loans in the country’s banking system.

The central bank is examining whether banks have followed prudential norms in respect of these stressed assets, a senior public sector bank official said. It's also assessing classification, provisioning and debt recast in respect of those loans, the official said.

This is a part of regular annual inspection of book of the banks that the central bank undertakes each year after the closure of the financial year, another official said. Some of the accounts include Videocon, Jindal Steel and Power, the official added.

This exercise comes at a time when bad loans in the banking system have risen to around Rs 10.3 lakh crore, or 11.2 percent of advances, compared to Rs 8 lakh crore as on March 31, 2017.

Following the annual inspection of the last year, many lenders, including Axis Bank Ltd., Bank of India Ltd. and Yes Bank Ltd., were caught for under-reporting of non-performing assets. The lenders started reporting divergences since June last year for having under-reported NPAs in 2015-16. This was followed by a second round of disclosures, starting October, of under-reporting in 2016-17 by a few lenders.

In most cases, this led to a shooting up of bad loans and an ensuing jump in provisions against dud assets. This eroded their profits, and led to a sell-off in the stock causing erosion of wealth for investors. Private sector lenders, which were reputed for their caution on the asset quality front vis-a-vis the poorly governed state-owned peers, were the worst hit in this exercise.

Among others, mid-sized private sector lender Yes Bank was found to have under-reported gross NPAs by a whopping Rs 11,000 crore in the two fiscals, while the third largest lender Axis Bank was found to have a divergence of over Rs 14,000 crore. ICICI Bank had over Rs 5,000 crore on these accounts for 2015-16 alone.

Last year, RBI had tweaked the rules to make it compulsory for lenders to disclose under-reporting of bad assets. Before this there was a massive book clean-up through the asset quality review in the previous year.