Q4 Results: Bank Of Maharashtra Decides To Set-Off Rs 7,328 Crore In Accumulated Losses

Bank of Maharashtra, which exited the Reserve Bank of India’s prompt corrective action framework in January, has decided to set off accumulated losses worth Rs 7,328 crore against the balance available in its share premium and revenue reserves account.

That would present a “true and fair view of the financial position” of the bank, it said in a media statement.

This is the second such instance after Indian Overseas Bank in January last year decided to write off its accumulated losses against share premium.

The Reserve Bank of India and the central government have the right to permit banks to set-off accumulated losses against share premium, according to S Santhanakrishnan, partner at PKF Sridhar & Santhanam LLP. “It makes no sense if on one side of the balance sheet you have losses, and on the other reserves—the balance sheet only gets bloated.”

But Indian Overseas Bank’s decision had sparked a debate whether such an accounting practice meets the regulatory guidelines as the company law does not permit it.

The Companies Act, 2013 permits just five applications of funds in the share premium account. These include issue of bonus shares, buyback of securities, providing for premium payable on redemption of preference shares or debentures, expenses relating to issue of shares or debentures, and writing off the preliminary expenses of the company. But the Banking Regulation Act, 1949 indirectly allows for other use of funds in the share premium accounts. But banks have to seek prior approval of the regulator “before any appropriation is made from the statutory reserve or any other reserves”, according to a 2006 RBI circular.

“The banks come under a special purpose legislation. The RBI Act will supersede Companies Act and hence, no other permission is required,” Santhanakrishnan told BloombergQuint.

Earnings Highlights

Bank of Maharashtra reported a profit of Rs 72.38 crore for the three months ended March—the first quarter after it exited the prompt corrective action framework that puts certain lending and operational restrictions on financially weaker banks. That compares with a loss of Rs 113.51 crore a year ago, the statement said. Its net interest income, or core income, rose 13.5 percent year-on-year to Rs 1,000 crore.

The bank’s asset quality also improved during the period. Its gross non-performing assets came down to 16.4 percent from 17.31 percent in the December quarter. Net NPAs stood at 5.52 percent against 5.91 percent in the preceding three months. For the full year, the bank’s net loss widened to Rs 4,783 crore from Rs 1,146 crore a year ago.

The bank will raise up to Rs 3,000 crore (including share premium) by way of preferential allotment to Government of India and financial institutions or by qualified institutional placement, further public offer, rights issue or AT-1 bonds. Its board has also approved raising of Rs 1,000 crore by way of issue of Basel-III compliant tier I or II bonds or such other securities at an appropriate time, the bank said.