Boosting investor confidence in banking

Regulatory clarity and reducing information asymmetry are key to addressing NPA divergence

In FY2016 and FY2017, five Indian banks disclosed that RBI audit suggested they have under-reported the NPA numbers in their financial statements to the tune of Rs 530 bn. This NPA divergence was surprising since these banks are widely held by institutional investors and invite a higher market scrutiny. It may be argued that information asymmetry, sometimes self-imposed, with certain elements in the system exacerbated gaps in Reserve Bank of India (RBI) regulations leading to the NPA reporting fiasco. NPA and other delinquency recognition related regulation and corresponding provisioning and capital requirements remain exposed to subjective interpretation. This may provide