The Reserve Bank of India (RBI) on October 11, 2022, issued a notification regarding the Disclosure of Divergence in Asset Classification and Provisioning.
In terms of paragraph C.4(e) of Annexure III to the Reserve Bank of India (Financial Statements-Presentation and Disclosures) Directions, 2021, commercial banks (excluding Regional Rural Banks (RRBs) are required to disclose details of divergence in asset classification and provisioning where such divergence assessed by the Reserve Bank of India (RBI) exceeds certain specified thresholds. In order to strengthen compliance with income recognition, asset classification, and provisioning norms, it has now been decided to introduce similar disclosure requirements for Primary (Urban) Co-operative Banks (UCBs) and revise the specified thresholds for commercial banks.
Therefore, for the financial statements for the year ending March 31, 2023, banks shall make suitable disclosures in the manner specified in paragraph C.4(e) of Annexure III to the Reserve Bank of India (Financial Statements-Presentation and Disclosures) Directions, 2021, if either or both of the following conditions are satisfied:
o the additional provisioning for non-performing assets (NPAs) assessed by the RBI exceeds 10% of the reported profit before provisions and contingencies for the reference period; and
o the additional Gross NPAs identified by the RBI exceed 10% of the reported incremental Gross NPAs for the reference period.
It is further stated that in the case of UCBs the threshold for reported incremental Gross NPAs specified in the above paragraph shall be 15%, which shall be reduced progressively in a phased manner, after review.
The thresholds specified above have been revised for disclosures in annual financial statements for the year ending March 31, 2024:
The Reported profit before provisions and contingencies for Commercial Banks is 5% and for UCBs is 5%.
The reported incremental Gross NPA for Commercial Banks is 5% and for UCBs is 15%.
These instructions are applicable to all commercial banks (excluding Regional Rural Banks) and all Primary (Urban) Co-operative Banks. These instructions shall come into effect for disclosures in the notes to the annual financial statements of the year ending March 31, 2023, and onwards.
The Reserve Bank of India (Financial Statements - Presentation and Disclosures) Directions, 2021 have been updated to reflect these changes.
[Notification No. RBI/2022-23/130 DOR.ACC.REC.No.74/21.04.018/2022-23]
