Did divergence in provisions lead to RBI penalty on SIB?

KOCHI: Was the divergence in provisions to the tune of about Rs138 crore with regard to a non-funded account valued at Rs152.92 crore last year the main culprit behind the RBI penalty on South Indian Bank (SIB)?

The Reserve Bank of India (RBI) yesterday imposed a monetary penalty of Rs5 crore (Rs50 million) on South Indian Bank (SIB) for non-compliance on income recognition and asset classification (IRAC) norms, Know Your Customer (KYC) norms and treasury function and for deficiencies in its compliance function and compliance culture.

An RBI statement said, “the penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949, taking into account the failure of the bank to adhere to the aforesaid directions issued by RBI.”

The bank as part of its financials for the fourth quarter of 2018, released a few days back, mentioned that RBI had assessed a divergence in provision at Rs138 crore with regard to a non-funded account that turned NPA and valued at Rs152.92 crore.

However, to a clarification sought by businessbenchmark.news into how the bank treated this account, SIB stated that bank had provided a performance guarantee to Exim Bank on behalf of this borrower, which was due for payment in the year 2018.

The bank said due to inherent weakness in the company’s financials, RBI had commented that the account be treated as NPA during its inspection for the financial year 2015-16, and required a provision of 25 per cent on this exposure.

“Accordingly the same was classified as ‘non-funded NPA’ and the bank had subsequently made the required provision on that account during 2016-17 itself,” the bank statement added.

SIB spokesperson further said that during the inspection for the financial year 2016-17, RBI had assessed divergence in the provisioning requirement on this account, ie instead of 25 per cent, the bank was required to provide 100 per cent against this account.

However, according to the bank, during the third quarter of 2017-18, the non-funded exposure limit got crystallised on invocation of the guarantee and was fully provided for, and the NPA was sold to ARC during the fourth quarter.

SIB also added that this account had been identified as an NPA by the bank even during 2016-17 itself, but the nature of the account being non-funded, the same was not included in the gross non-performing assets (GNPA) though provisions against the account was held by the bank.



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