The Securities and Exchange Board of India (Sebi) on Thursday tightened the asset quality disclosure norms for banks. The market regulator has directed all listed lenders to make disclosures pertaining to divergences and provisioning within a day of receipt of the Reserve Bank of India’s (RBI’s) final risk assessment report (RAR).
Earlier, banks used to make these disclosures as part of their annual financial statements. Also, in the past, the regulators had frowned upon certain banks for making selective disclosures from the RAR, an annual exercise conducted by the central bank.
After consultation, Sebi and RBI have set the threshold for making such disclosures. These include additional provisioning for non-performing assets (NPAs) assessed by the RBI exceeding 10 per cent of the reported profit before provisions and contingencies for the reference period. Also, additional gross NPAs identified by the RBI exceeding 15 per cent of the published incremental gross NPAs for the reference period.
Sebi has said the disclosures have to be made in either or both cases.
The move is aimed at improving transparency and to help investors assess the risk better.
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“These disclosures in respect of divergence and provisioning are in the nature of material events or information and hence, necessitate immediate disclosure. Further, this information is also price-sensitive, requiring prompt disclosure,” Sebi said in a circular.
Analysts said in the absence of specific guidelines, banks used their own discretion in making disclosures from the RAR.
“The latest Sebi circular is a welcome step. The rules are now clear for making disclosures from the risk report. This will help avoid a YES Bank-like episode in future,” said a banking analyst.
Earlier this year, YES Bank had made a disclosure to the stock exchanges stating the RBI’s RAR had not found any divergence in asset classification and provisioning done by the lender for 2017-18. Following the disclosure, shares of YES Bank had skyrocketed 30 per cent. However, later the RBI had pulled up YES Bank for making the disclosure over breach of confidentiality and selective revelations. The stock had later tanked.
Later Sebi launched a probe into the same matter, charging the lender for making selective disclosure and not disclosing other issues mentioned in the RAR, such as lapses and regulatory breaches in various areas in its functioning.
In September, YES Bank had settled the case with Sebi under the consent route by paying a penalty of Rs 14.5 lakh.
Earlier, banks used to make these disclosures as part of their annual financial statements. Also, in the past, the regulators had frowned upon certain banks for making selective disclosures from the RAR, an annual exercise conducted by the central bank.
After consultation, Sebi and RBI have set the threshold for making such disclosures. These include additional provisioning for non-performing assets (NPAs) assessed by the RBI exceeding 10 per cent of the reported profit before provisions and contingencies for the reference period. Also, additional gross NPAs identified by the RBI exceeding 15 per cent of the published incremental gross NPAs for the reference period.
Sebi has said the disclosures have to be made in either or both cases.
The move is aimed at improving transparency and to help investors assess the risk better.
ALSO READ: Sebi brass rejig: Changes at the top expected in the next six months
“These disclosures in respect of divergence and provisioning are in the nature of material events or information and hence, necessitate immediate disclosure. Further, this information is also price-sensitive, requiring prompt disclosure,” Sebi said in a circular.
Analysts said in the absence of specific guidelines, banks used their own discretion in making disclosures from the RAR.
“The latest Sebi circular is a welcome step. The rules are now clear for making disclosures from the risk report. This will help avoid a YES Bank-like episode in future,” said a banking analyst.
Earlier this year, YES Bank had made a disclosure to the stock exchanges stating the RBI’s RAR had not found any divergence in asset classification and provisioning done by the lender for 2017-18. Following the disclosure, shares of YES Bank had skyrocketed 30 per cent. However, later the RBI had pulled up YES Bank for making the disclosure over breach of confidentiality and selective revelations. The stock had later tanked.
Later Sebi launched a probe into the same matter, charging the lender for making selective disclosure and not disclosing other issues mentioned in the RAR, such as lapses and regulatory breaches in various areas in its functioning.
In September, YES Bank had settled the case with Sebi under the consent route by paying a penalty of Rs 14.5 lakh.
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