Date: 2022-10-11Category: Not ApplicableState: Union GovernmentCountry: India
Reserve Bank of India (Financial Statements - Presentation and Disclosures) Directions, 2021 - Disclosure of Divergence in Asset Classification and Provisioning
Executive Summary:
This document from the Reserve Bank of India (RBI) introduces disclosure requirements for Primary Urban Cooperative Banks (UCBs) and revises thresholds for commercial banks regarding divergence in asset classification and provisioning. These changes aim to strengthen compliance with income recognition, asset classification, and provisioning norms. The instructions are effective for disclosures in annual financial statements for the year ending March 31, 2023, and onwards.
Key Points / Main Content:
Disclosure Requirements:
* Banks must disclose details of divergence in asset classification and provisioning if thresholds are exceeded.
* The disclosures must be in the manner specified in paragraph C.4e of Annex III to the Reserve Bank of India Financial Statements Presentation and Disclosures Directions, 2021.
Thresholds for Disclosure (Financial Year Ending March 31, 2023):
* Disclosure is required if additional provisioning for NPAs assessed by the RBI exceeds 10% of the reported profit before provisions and contingencies.
* Disclosure is required if additional Gross NPAs identified by the RBI exceed 10% of the reported incremental Gross NPAs for commercial banks, and 15% for UCBs.
Revised Thresholds (Financial Year Ending March 31, 2024, and onwards):
* Threshold linked to reported profit before provisions and contingencies: 5% for both Commercial Banks and UCBs.
* Threshold linked to reported incremental Gross NPA: 5% for Commercial Banks and 15% for UCBs, subject to review for UCBs.
Applicability:
* These instructions apply to all commercial banks excluding Regional Rural Banks (RRBs) and all Primary Urban Cooperative Banks (UCBs).
* The Reserve Bank of India Financial Statements Presentation and Disclosures Directions, 2021 are being updated to reflect these changes.
Impact Analysis:
Commercial Banks (excluding RRBs):
* Impact: Must comply with revised disclosure requirements and thresholds for divergence in asset classification and provisioning.
* Action Required: Implement changes to disclosure practices for financial statements for the year ending March 31, 2023, and onwards, based on the new thresholds.
Primary Urban Cooperative Banks (UCBs):
* Impact: New disclosure requirements are introduced, and they must comply with specific thresholds for divergence in asset classification and provisioning.
* Action Required: Implement new disclosure practices for financial statements for the year ending March 31, 2023, and onwards, and prepare for potential threshold revisions after review.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking sector and monetary policy.
Reserve Bank of India Financial Statements Presentation and Disclosures Directions, 2021: A set of guidelines issued by the Reserve Bank of India regarding the presentation and disclosure of financial statements by banks.
Regional Rural Banks: Regional Rural Banks (RRBs) are financial institutions in India that operate at the regional level to provide banking services to rural areas.
Primary Urban Cooperative Banks: Primary Urban Cooperative Banks (UCBs) are cooperative banks that operate in urban and semi-urban areas in India.
nonperforming assets: Loans or advances where principal or interest payments are overdue for a specified period, indicating a potential risk of default.
Mumbai, Maharashtra: A city in Maharashtra where the central office of the Department of Regulation, Reserve Bank of India is located.
Usha Janakiraman: Chief General Manager at Reserve Bank of India
Gross NPAs: The total amount of non-performing assets held by a bank, without deducting any provisions made for potential losses.
भारतीय �रज़व� ब�क
_________________________RESERVE BANK OF INDIA ______________________
www.rbi.org.in
RBI/2022-23/130
DOR.ACC.REC.No.74/21.04.018/2022-23 October 11, 2022
Madam / Dear Sir,
Reserve Bank of India (Financial Statements - Presentation and Disclosures)
Directions, 2021 - 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.
2. Accordingly, 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
Annex III to the afore-mentioned Directions, if either or both of the following conditions
are satisfied:
(a) the additional provisioning for non-performing assets (NPAs) assessed by the
RBI exceeds 10 per cent of the reported profit before provisions and
contingencies1 for the reference period; and
1 To determine this threshold, UCBs should add back (a) tax expense, and (b) provisions for standard
and non-performing assets (recognised as expenses in their Profit and Loss Account) to their reported
net profits for the year.
िविनयमन िवभाग,क��ीय कायार्लय, 12 व� और 13 व� मंिजल, क��ीय कायार्लय भवन, शहीद भगत �संह माग,र्फोटर्,मुंबई-400001
दरू भाष: 022-22601000 फैक्स: 022-22705691 ई-मेल: cgmicdor@rbi.org.in
____________________________________________________________________________________________________________________________
Department of Regulation, Central Office, 12th and 13th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai- 400 001
Tel: 022- 2260 1000 Fax: 022-2270 5691 email: cgmicdor@rbi.org.in
�हदं ी आसान ह ै इसका �योग बढ़ाइए(b) the additional Gross NPAs identified by the RBI exceed 10 per cent of the
reported2 incremental Gross NPAs for the reference period.
Provided further that in the case of UCBs the threshold for reported incremental
Gross NPAs specified in paragraph 2(b) above shall be 15 per cent, which shall
be reduced progressively in a phased manner, after review.
3. The thresholds specified in paragraph (2) above shall be revised for disclosures in
annual financial statements for the year ending March 31, 2024, and onwards, as
under:
Commercial UCBs
Ref. Threshold linked to:
Banks (%) (%)
2(a) Reported profit before provisions and contingencies 5 5
2(b) Reported incremental Gross NPA 5 15*
*May be reduced subject to review
Applicability
4. 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.
5. The Reserve Bank of India (Financial Statements - Presentation and Disclosures)
Directions, 2021 are being updated to reflect these changes.
Yours faithfully,
(Usha Janakiraman)
Chief General Manager
2 Reported incremental Gross NPAs refers to additions during the reference year to the Gross NPAs as
disclosed in the Notes to the Financial Statements of the reference period.
2