Asset Quality

Asset Quality

(i) Non-performing assets: Banks are required to disclose Net NPA as percentage to net advances and the details of movement of gross NPAs, net NPAs and provisions during the year.

(ii) Following details are to be disclosed in respect of Loan Assets subjected to restructuring:

i. details of accounts restructured on a cumulative basis excluding the standard restructured accounts which cease to attract higher provision and risk weight (if applicable);
ii. provisions made on restructured accounts under various categories; and
iii. details of movement of restructured accounts.

Above details are classified under different categories as under:

i. Type of restructuring- Under CDR Mechanism, Under SME Debt Restructuring Mechanism and Others

ii. Asset Classification of restructured accounts- Standard, Substandard, Doubtful and Loss assets

iii. Movement under each of the above disclosing No. of borrowers, Amount outstanding and Provision thereon These details are to be disclosed in a tabular format as given in the Master Circular on Disclosure in Financial Statements – Notes of Accounts dated July 1, 2015.

Bank should also disclose investment in equity shares under strategic Debt Restructuring Banks must disclose the total amount outstanding in all the accounts/ facilities of borrowers whose accounts have been restructured along with the restructured part or facility. This means even if only one of the facilities/ accounts of a borrower have been restructured, the bank should also disclose the entire outstanding amount pertaining to all the facilities/ accounts of that particular borrower.

(iii) Financial assets transferred during the year to securitisation company (SC)/reconstruction company (RC) – With regards to financial assets transferred by the bank to securitisation/reconstruction company the bank is required to disclose the number of accounts transferred, aggregate value (net of provisions) of accounts sold to SC/RC, aggregate consideration and additional consideration realized in respect of accounts transferred in earlier years. Aggregate gain/loss over net book value is also required to be computed and disclosed.

To enhance transparency additional disclosure for investment in Security Receipts (SRs) is required

Particulars	SRs issued within past 5 years	SRs issued more than 5 years ago but within past 8 years	SRs issued more than 8 years ago
(i) Book value of SRs backed by NPAs sold by the bank as underlying
Provision held against (i)
(ii) Book value of SRs backed by NPAs sold by other banks/ financial institutions/ non-banking financial companies as underlying
Provision held against (ii)
Total (i + ii)

 

Disclosures on the Scheme for Sustainable Structuring of Stressed Assets (S4A), as on March 31 (INR Crore
No. of accounts where S4A has been applied	Aggregate amount outstanding	Amount outstanding		Provision Held
		In Part A	In Part B
Classified as Standard
Classified as NPA

 

Additional disclosures are required to be made in respect of Flexible Structuring of existing loans, Accounts still under the stand-still period under SDR scheme, Change in Ownership outside SDR scheme, Change in Ownership of projects under Implementation, as per format in theAppendix to RBI Circular RBI/2016-17/122 DBR. No. BP.BC.34/21.04.132/2017-17 dated November 10, 2016.

(iv) Details of non-performing financial assets purchased/sold – Banks which purchase/ sold non-performing financial assets from/to other banks shall be required to make the following disclosures in the Notes on Accounts to their Balance sheets:

A. Details of non-performing financial assets purchased:

(a) No. of accounts purchased during the year

(b) Aggregate outstanding
 Of these, number of accounts restructured during the year
 Aggregate outstanding

B. Details of non-performing financial assets sold:
(a) No. of accounts sold during the year
(b) Aggregate outstanding
(c) Aggregate consideration received

(v) Provisions on Standard Asset: Provisions made towards Standard Assets should be disclosed separately in notes to account. It may be noted that the amount need not be netted of from gross advances but shown separately as ‘Provisions against Standard Assets’, under ‘Other Liabilities and Provisions – Others’ in Schedule No. 5 of the balance sheet.

Business Ratios: RBI has prescribed following ratios to be computed by the bank to be disclosed in the notes forming part of the balance sheet:

(i) Interest Income as a percentage to Working Funds- Working funds is to be reckoned as average of total assets (excluding accumulated losses, if any) as reported to RBI in Form X under Section 27 of the Banking Regulation Act, 1949, during the 12 months of the financial year.

(ii) Non-interest income as a percentage to Working Funds- Non-interest income is to be reckoned as income reported under Schedule 14.

(iii) Operating Profit as a percentage to Working Funds- Operating Profit is to be reckoned as profit before making provisions, i.e., Total income as per Schedule 13 and Schedule 14 less Total expenditure as per Schedule 15 and Schedule 16.

(iv) Return on Assets (it should be with reference to average working funds i.e., total of assets excluding accumulated losses, if any): The return is to be reckoned as the net profit for the year after making all the provisions.

(v) Business (Deposits plus advances) per employee (inter- bank deposits may be excluded): This ratio may be computed based on the average business and average no. of employees during the year.

(vi) Profit per employee: This ratio may be computed based on the average no. of employees during the year.

 Asset Liability Management: Banks are required to disclose the maturity pattern of Deposits, Advances, Investments, Borrowings, Foreign Currency assets, Foreign Currency liabilities as on balance sheet date. The maturity pattern needs to be disclosed in following time buckets-
(i) Day 1
(ii) 2 to 7 days
(iii) 8 to 14 days
(iv) 15 to 28 days
(v) 29 days to 3 months
(vi) Over 3 months & upto 6 months
(vii) Over 6 months & upto 1 year
(viii) Over 1 year & up to 3 years
(ix) Over 3 years & upto 5 years
(x) Over 5 years

The maturity pattern of demand deposits and demand loans (including in foreign currency) is to be based on empirical study carried by the bank. Based on such study, such deposits and loans should be classified under different buckets. Auditor will also have to verify the accuracy of the maturity pattern generated by the system at Branch level and also at controlling office level to ensure the accuracy of disclosure made under this paragraph.

Exposures: The Reserve Bank of India, vide its Master Circular DBR.No.Dir.BC. 12/13.03.00/2015-16 of July 1, 2015 on “Exposure Norms” provides requirements in respect of exposure limits for banks. Under the master circular on Disclosure in Financial Statements the RBI has prescribed the details which need to be disclosed with respect to Banks exposure to real estate sector and capital market:

(A) Exposure to Real Estate Sector- Banks are required to disclose direct and indirect exposure to real estate sector in the below mentioned format

a) Direct exposure

(i) Residential Mortgages: Includes lending fully secured by mortgages on residential property that is or will be occupied by the borrower or that is rented; (Individual housing loans eligible for inclusion in priority sector advances may be shown separately)

(ii) Commercial Real Estate- Both fund and non-fund based lending secured by mortgages of commercial real estate (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction, etc.).

(iii) Investments in Mortgage Backed Securities (MBS) and other securitised exposuresa.

Residential,

b. Commercial Real Estate.

b) Indirect Exposure: Fund based and non-fund based exposures on National Housing Bank (NHB) and Housing Finance Companies (HFCs).

(B) Exposure to Capital Market- Banks are required to disclose the total exposure to capital market under the following heads:

a. direct investment in equity shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds the corpus of which is not exclusively invested in corporate debt;

b. advances against shares/bonds/debentures or other securities or on clean basis to individuals for investment in shares (including IPOs/ESOPs), convertible bonds, convertible debentures, and units of equity-oriented mutual funds;

c. advances for any other purposes where shares or convertible bonds or convertible debentures or units of equity oriented mutual funds are taken as primary security;

d. advances for any other purposes to the extent secured by the collateral security of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds i.e. where the primary security other than shares/convertible bonds/convertible debentures/units of equity oriented mutual funds does not fully cover the advances;

e. secured and unsecured advances to stockbrokers and guarantees issued on behalf of stockbrokers and market makers;

f. loans sanctioned to corporates against the security of shares / bonds/ debentures or other securities or on clean basis for meeting promoter’s contribution to the equity of new companies in anticipation of raising resources;

g. bridge loans to companies against expected equity flows/issues;

h. underwriting commitments taken up by the banks in respect of primary issue of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds. However, RBI, vide its Master Circular No. DBR.No.Dir.BC. 12/13.03.00/2015-16 dated July 1, 2015 on “Exposure Norms” has clarified that with effect from April 16, 2008, banks may exclude their own underwriting commitments, as also the underwriting commitments of their subsidiaries, through the book running process for the purpose of arriving at the capital market exposure of the solo bank as well as the consolidated bank.

i. financing to stockbrokers for margin trading;

j. all exposures to Venture Capital Funds (both registered and unregistered).

The exposure is to be reckoned with reference to higher of outstanding and sanctioned limit. Exposure to the sensitive sector would include lending whichis primarily secured against such sensitive sector.

Risk category-wise country-wise exposure: As per the extant RBI guidelines, the country wise net exposure of the Bank and the provision held thereof is categorized into various risk categories listed below:

(i) Insignificant
(ii) Low
(iii) Moderate
(iv) High
(v) Very High
(vi) Restricted
(vii) Off-credit
(viii) Total

Till the banks move over to own internal rating systems, they may use the seven category classification followed by Export Credit Guarantee Corporation of India Ltd. (ECGC) for the purpose of classification and making provisions for country risk exposures. ECGC shall provide to banks, on request, quarterly updates of their country classifications and shall also inform all banks in case of any sudden major changes in country classification in the interim period.

Details of Single Borrower Limit (SGL), Group Borrower Limit (GBL) exceeded by the bank: The bank should make appropriate disclosure in respect of cases where it had exceeded the prudential exposure limits during the year. The sanctioned limit or entire outstanding, whichever is high, shall be
reckoned for arriving at exposure limit and for disclosure purpose. The same
needs to be verified from the minutes of Board meeting of the bank. If there is
no such disclosure, auditor may take representation from bank in this regard.
Following disclosure need to be made:
i. The number and amount of exposures in excess of the prudential exposure limit during the year.

ii. Credit exposure as percentage to capital funds and as a percentage to total assets, in respect of:
 the largest single borrower.
 the largest borrower group.
 the 20 largest single borrower.
 the 20 largest borrower group.

iii. Credit exposure to the five largest industrial sectors (if applicable) as percentage to total loan assets.

iv. Total amount of advances for which intangible securities such as charge over the rights, licenses, authority, etc. have been taken as also the estimated value of such intangible collateral. The disclosure shall be made under a separate head to differentiate such loans from other entirely unsecured loans.

v. Factoring exposures.

vi. Exposures where the Bank had exceeded the Prudential Exposure Limits during the year.

Unsecured Advances – To ensure correct reflection of the unsecured advances in Schedule 9 of the banks’ balance sheet, the banks are required to follow the norms as under:

 For determining the amount of unsecured advances for reflecting in Schedule 9 of the published balance sheet, the rights, licenses, authorizations, etc., charged to the banks as collateral in respect of projects (including infrastructure projects) financed by them, should not be reckoned as tangible security. Hence such advances shall be reckoned as unsecured.

 Banks should also disclose the total amount of advances for which intangible securities such as charge over the rights, licenses, authority,

etc. has been taken as also the estimated value of such intangible collateral. The disclosure may be made under a separate head in “Notes to Accounts”. This would differentiate such loans from other entirely unsecured loans.

Disclosure of Penalties imposed by RBI: At present, Reserve Bank is empowered to impose penalties on a commercial bank under the provision of Section 46(4) of the Banking Regulation Act, 1949, for contraventions of any of the provisions of the Act or non-compliance with any other requirements of the Banking Regulation Act, 1949; order, rule or condition specified by Reserve Bank under the Act. The penalty also is required to be disclosed in the “Notes on Accounts” to the Balance Sheet.

Provisions and Contingencies: To facilitate easy reading of the financial statements and to make the information on all Provisions and Contingencies available at one place, banks are required to disclose in the ‘Notes to Accounts’ the following information:

(i) Provisions for depreciation on Investment.

(ii) Provision towards NPA.

(iii) Provision towards Standard Asset.

(iv) Provision made towards Income tax.

(v) Other Provision and Contingencies (with details).

Floating Provisions- Banks are required to make comprehensive disclosures on the movement of floating provisions in the “notes to accounts” to the balance sheet as follows:
 Opening balance in the floating provisions account.
 The quantum of floating provisions made in the accounting year.
 Amount of draw down made during the accounting year.
 Closing balance in the floating provisions account.
For draw down of provision during the year, purpose of draw down is required to be mentioned.

Draw Down from Reserves: Suitable disclosures should be made regarding any draw down of reserves.

Disclosure of complaints- Banks are also required to disclose the following brief details along with their financial results:

(i) Customer Complaints

(a) No. of complaints pending at the beginning of the year.

(b) No. of complaints received during the year.

(c) No. of complaints redressed during the year.

(d) No. of complaints pending at the end of the year.

(ii) Awards passed by the Banking Ombudsman

(a) No. of unimplemented Awards at the beginning of the year.

(b) No. of Awards passed by the Banking Ombudsmen during the year.

(c) No. of Awards implemented during the year.

(d) No. of unimplemented Awards at the end of the year.

Disclosure of Letter of Comforts (LOCs) issued by banks- The banks are required to disclose full particulars of all the Letter of Comforts (LoCs) issued by them during the year, including their assessed financial impact, as also their assessed cumulative financial obligations under the LoCs issued by them in the past and outstanding at the end of current year. Auditor would be required to verify the accuracy of system generated data in respect of this disclosure and verify that disclosure is correctly made.

Provisioning Coverage Ratio (PCR) – The PCR (ratio of provisioning to gross non-performing assets) should be disclosed in the Notes to Accounts to the Balance Sheet.

Bancassurance Business – The details of fees / brokerage earned in respect of insurance broking, agency and bancassurance business undertaken by bank is required to be disclosed in the ‘Notes to Accounts’ to the Balance Sheet.

Concentration of Deposits – Total Deposits of twenty largest depositors and Percentage of Deposits of twenty largest depositors to Total Deposits of the bank should be disclosed by the bank in the notes to accounts.

Concentration of Advances – Total Advances of twenty largest borrowers and Percentage of Advances to twenty largest borrowers to Total Advances of the bank should be disclosed by the bank in the notes to accounts. Advances should be computed as per definition of Credit Exposure including derivatives furnished in the Master Circular on Exposure Norms.
Concentration of Exposures – Total Exposure to twenty largest borrowers/customers and Percentage of Exposures to twenty largest borrowers/customers to Total Exposure of the bank on borrowers/customers should be disclosed by the bank in the notes to accounts. Exposures should be computed based on credit and investment exposure as prescribed in the Master Circular on Exposure Norms.

Concentration of NPAs – Total Exposure to top four NPA accounts should be disclosed by the bank in the notes to accounts.

Sector-wise NPAs – Percentage of NPAs to Total Advances in the sectors, such as, Agriculture & allied activities, Industry (Micro & small, Medium and Large), Services, Personal Loans, should be disclosed by the bank in the notes to accounts.

Movement of NPAs – Movement in NPAs during the year including opening balance, additions during the year, less upgradations, recoveries (excluding recoveries made from upgraded accounts) and write off during the year, should be disclosed by the bank in the notes to accounts.

Overseas Total Assets, Total NPAs and Total Revenue should be disclosed by the bank in the notes to accounts.

Off-balance Sheet SPVs sponsored (which are required to be consolidated as per accounting norms) both domestic and overseas should be disclosed by the bank in the notes to accounts.

Unamortized Pension and Gratuity Liabilities: Appropriate disclosures of the accounting policy followed in regard to amortization of pension and gratuity expenditure may be made in the Notes to Accounts to the financial statements.

Disclosures on Remuneration: Private sector banks and foreign banks (to the extent applicable) are advised to disclose remuneration as specified in the Master Circular on “Disclosures in Financial Statements- Notes to Accounts”.

Disclosures relating to Securitisation: The Notes to Accounts of the originating banks should indicate the outstanding amount of securitized assets as per books of the SPV sponsored by the bank and total amount of exposures retained by the bank as on the date of balance sheet to comply with the Minimum Retention Requirement (MRR). These figures should be based on the information duly certified by the SPV’s auditors obtained by the originating bank from the SPV.

Credit Default Swaps: Banks using a proprietary model for pricing CDS, shall disclose both the proprietary model price and the standard model price in terms of extant guidelines in the Notes to the Accounts and should also include an explanation of the rationale behind using a particular model over another.

Intra Group Exposure With the developments of financial markets in India, banks have increasingly expanded their presence in permitted financial activities through entities that are owned by them fully or partly. As a result, banks’ exposure to the group entities has increased and may rise further going forward. In order to ensure transparency in their dealings with group entities, banks should make the following disclosures for the current year with comparatives for the previous year:

(a) Total amount of intra group exposures (b) Total amount of top 20 intra group exposures (c) Percentage of intra group exposures to total exposure of the bank on borrowers / customers (d) Details of breach of limits on intra group exposures and regulatory action thereon, if any.

The details may be verified by the auditor from investment details of Bank and other relevant information available with Bank.

Transfer to Depositor Education and Awareness Fund (DEAF): Unclaimed liabilities where amount due has been transferred to DEAF is required to be reflected as ‘Contingent Liability – Others, items for which the bank is contingently liable’ under Schedule 12 of the annual financial statements. Banks are also required to disclose the amounts transferred to DEAF under ‘Notes to Accounts’ as per the format given below.

Particulars	Current Year	Previous Year
Opening balance of amounts transferred to DEAF
Add: Amounts Transferred to DEAF during the year
Less: Amounts reimbursed by DEAF towards claim
Closing balance of amounts transferred to DEAF

 

Unhedged Foreign Currency Exposure:

Banks are required to disclosei.

their policy on managing credit risk arising out of unhedged foreign currency risk of the Borrowers.

ii. Incremental provision and additional capital held by the Bank for unhedged foreign currency exposure of their borrowers.

Auditor needs to understand the policy of the bank for unhedged foreign currency exposure and verify that it is appropriately disclosed. As also incremental provision and additional capital held.

Liquidity Coverage Ratio (LCR)

i. Banks are required to disclose information on their Liquidity Coverage Ratio (LCR) in their annual financial statements under ‘Notes to Accounts’, for
which the LCR related information needs to be disclosed in the elaborate format as given in the Master Circular.

LCR is a ratio of two factors, viz, the stock of High Quality Liquid Assets and the Net Cash Outflows over the next 30 calendar days.

The LCR requirement would be binding on banks from January 1, 2015; with a view to provide a transition time for banks, the requirement would be minimum 60% for the calendar year 2015 i.e. with effect from January 1, 2015, and rise in equal steps to reach the minimum required level of 100% on January 1, 2019, as per the time-line given below:

	01-Jan-17	01-Jan-18	01-Jan-19
Minimum LCR	80%	90%	100%

 

ii. Besides above, the Banks are also required to provide qualitative discussion around the LCR to facilitate understanding of the data provided, for example:
(a) the main drivers of their LCR results and the evolution of the contribution of inputs to the LCR’s calculation over time;

(b) intra period changes as well as changes over time;

(c) the composition of HQLA;

(d) concentration of funding sources;

(e) derivative exposures and potential collateral calls;

(f) currency mismatch in the LCR;

(g) a description of the degree of centralisation of liquidity management and interaction between the group’s units; and

(h) other inflows and outflows in the LCR calculation that are not captured inthe LCR common template but which the institution considers to be relevant for its liquidity profile.

iii. The relevant RBI circular reference no. DBOD.BP.BC.No.120 / 21.04.098/2013-14 dated June 9, 2014 can be referred for further details.