DIVERGENCE (BAD LOANS)

May 19, 2019

At least three public sector banks that have reported earnings for the January-March quarter have mentioned ‘divergence’ in bad loan recognition and have made provisions for such loans.

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Divergence takes place when the Reserve Bank of India (RBI) finds that a lender has under-reported (or not reported at all) bad loans in a particular year and hence asks the lender to make disclosures if under-reporting is more than 10% of bad loans or the provisioning.
Three state-run banks — Union Bank of India, Indian Bank and Central Bank of India — had reported divergence in bad loan recognition while announcing the results.
In all these banks, divergence was spotted for the financial year 2017-18. Higher provisioning for divergence was one of the reasons for them to report losses for the quarter.
Interestingly, divergence was identified not because these banks hadn’t classified the loan as non-performing assets (NPA) but because they were late in classifying them.

Source : The Hindu