Banks' bad loans under-estimated by over Rs 3,800 crore: Reserve Bank

Sitanshu Swain

Mumbai, Oct 4: The banking industry has under-estimated its non-performing assets (NPAs) by a whopping Rs 3,862.10 crore as on March 1997, a confidential Reserve Bank of India document says. The industry is also estimated to have underprovided to the extent of Rs 1,412.29 crore.

The worst "offender" is the public sector banking industry. Nineteen nationalised banks along with the State Bank of India and its seven associate banks have underestimated their NPAs by Rs 3,029.29 crore. While the RBI estimates the PSU banks' NPAs at Rs 46,907 crore, the actual NPAs shown by these banks' books are much lower at Rs 43,877.89 crore. The difference between the RBI estimates and actual provisioning in PSU banks is pegged at Rs 1,074.69 crore in March 1997. In percentage terms, however, nine new generation private sector banks showed the maximum amount of NPA "camouflaging" and underprovisioning. While the RBI estimated the NPAs of new private banks at Rs 328.21 crore, the actual figure shown by these banks is only Rs205.03 crore. Similarly, the difference between the RBI estimate and the actual provisioning is Rs 96.85 crore. While RBI inspection teams put the right provisioning requirement at Rs 120.30 crore, the new private banks made provisions of only Rs 23.45 crore.

In contrast, the old private sector banks underestimated their NPAs by a meagre Rs 652 crore. Twenty-six old private sector banks registered NPAs to the tune of Rs 2,138.32 crore in March 1997 while the central bank felt the actual NPAs should have been pegged at Rs 2,790.40 crore. The difference between the RBI estimate of provisioning and actual provisioning on account of NPAs in this segement is a paltry Rs 161.99 crore. Old private sector banks provided for Rs 493.77 crore in March last year while RBI inspection teams estimated the provisioning needs at Rs 655.76 crore.

Banks' H1 profit growth seen flat: The RBI inspection teams did not find much fault with most of the foreign banks barring Standard Chartered Bank, which underestimated itsNPAs by Rs 68 crore in March 1997. As far as underprovising goes, Deutsche Bank takes the cake by underproviding to the extent of Rs 29 crore.As a group, 37 foreign banks underestimated their NPAs by Rs 87.55 crore and provisioning by Rs 79.76 crore. The RBI estimated NPAs of foreign banks at Rs 1,355.93 crore while the acutal NPAs shown by these banks were to the tune of Rs 1268.38 crore. Similarly, foreign banks provided for Rs 402.98 crore while RBI inspection teams estimated the right amount of provisioning at Rs 482.74 crore. The board for financial supervision (BFS) of the RBI has adduced the following reasons for the lower recognition of NPAs and subsequent under-provisioning:

Failure to identify an NPA in terms of stipulated guidelines: There've been instances of `sub-standard' assets being classified as `standard';

Wrong classification of an NPA: classifying a `loss' asset as a `doubtful' or `sub-standard' asset; classifying a `doubtful' asset as a `sub-standard' asset.

The BFShas also detected instances where a bank has classified an account of a borrower as `substandard' and other accounts of the same borrower as `standard', throwing prudential norms to the winds.

"Essentially arising from the wrong classification of NPAs, there was a variation in the level of loan loss provisioning acutally held by the bank and the level required to be made as per the assessment of the RBI inspectors," the internal document said. In the public sector banking industry, with the sole exception of Bank of Baroda, all banks have underestimated their NPAs and have been subsequently found "guilty" of underprovisioning. The SBI group underestimated their NPAs by Rs 1,181.84 crore followed by Punjab National Bank (Rs 797 crore) and Bank of India (Rs 413.89 crore). Among listed banks, Oriental Bank of Commerce underestimated its NPAs by Rs 31 lakh, Dena by Rs 7 crore and Corporation Bank by Rs 29 crore. Among the new generation private sector banks, Centurion and HDFC Bank underestimated their NPAs bymassive margins. Centurion Bank has shown Rs 2.60 crore NPAs while an RBI inspection team has found the actual NPAs at Rs 14.96 crore. In the case of HDFC Bank, the reported NPAs are pegged at Rs 9.45 crore while the RBI assessment has shown the actual NPA level at Rs 43.52 crore. According to the RBI assessment, Global Trust Bank tops the list of new banks in NPA generation at Rs 92.49 crore (bank's estimate: Rs 72.71 crore), followed by UTI Bank Rs 65.15 crore (Rs 34.42 crore) and IndusInd Bank Rs 59.66 crore (Rs 48.78 crore). Among old private banks, Vysya Bank underestimated its NPAs by over 100 per cent. While the RBI estimates its NPAs at Rs 505.91 crore, the bank's books show Rs 215.07 crore worth of NPAs. Other old private banks with a big bulk of NPAs, according to the RBI estimate, are: Bank of Rajasthan Rs 301.70 crore (bank's estimate: Rs 194.91 crore), Federal Bank Rs 269.06 crore (Rs 233.62 crore) and Jammu & Kashmir Bank Rs 250.67 crore (Rs 220.38 crore).

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