RBI picks holes in IDBI provisioning, asset classification

The Reserve Bank of India (RBI) has disputed Industrial Development Bank of India's (IDBI) interpretation of asset classification and provisioning norms in "certain cases". IDBI classifying restructured loans as good assets is one of the accounting practices objected to by the central bank.

RBI had raised objections in its inspection report for the year ended March 31, 2003. IDBI adopted the same interpretation of RBI guidelines in its 18-month accounting period ended September 30, 2004, pending resolution of disputes.

In its annual report for April 2003-September 2004, IDBI said it has difference of opinion in interpretation of RBI guidelines in certain cases vis-a-vis the view taken in RBI inspection report for 2002-03.

An IDBI official said one of the objection involves classification of restructured loans. "The stressed loans in question turned good on restructuring and in a few cases, parts of the loans have even been paid in advance. In such cases, how can we treat the loans as anything but standard assets," he said.

RBI also has differences with IDBI on some provisioning and income recognition practices, but did not elaborate on what the actual issues are. The official said IDBI is in discussion with the regulator for resolution of these issues.

IDBI, in the significant accounting policies section in the annual report, said in respect of the non-performing assets (NPAs) classified as doubtful for more than three years as on March 31, 2004, the increase in provisioning requirement is applied in a phased manner over a three year period.

IDBI also keeps in view "the record of recovery and other relevant factors" while determining the requirements of provisions/write-offs.

Income recognition in the profit and loss account is net of provisions/write-offs/write-back for bad and doubtful debts and also other necessary and expedient provisions.

IDBI has restructured loan assets under the banking sector's corporate debt restructuring scheme. The amount of IDBI loans restructured under the CDR mechanism is not known. For the banking sector, over Rs 79,000 crore of loans of 120 companies have been restructured under CDR.

During 2003-04, IDBI transferred Rs 382 crore of non-performing assets to Asset Reconstruction Company India Ltd for Rs 246 crore.

It also approved 268 one-time settlements/negotiated settlements under which Rs 2,058 crore is recoverable towards principal, Rs 249 crore towards interest and Rs 30 crore towards other dues. Recoveries made during April 2003-September 2004 by way of settlements amounted to Rs 953 crore.

IDBI had total outstanding loan portfolio of Rs 41,944 crore as on September 30, 2004, after the transfer of Rs 9,000 crore worth of sub-standard assets to Stressed Assets Stabilisation Fund.

As at end-September 2004, 97.6 per cent of IDBI's loan assets were standard, 1.1 per cent sub-standard assets and 1.3 per cent doubtful assets.