What changed
RBI extended divergence disclosure rules, previously only for commercial banks, to Primary (Urban) Co-operative Banks (UCBs) from FY2022-23. For FY2022-23, thresholds were 10% for both provisioning and incremental NPAs (15% for UCBs incremental NPAs); from FY2023-24 onwards, thresholds tightened to 5% for commercial banks on both counts, while UCBs remain at 5% for provisioning and 15% for incremental NPAs, subject to review.
What it means for you
Banks and UCBs must now publicly disclose RBI-assessed divergences in asset classification and provisioning when they cross lower thresholds, increasing transparency and compliance pressure. This will likely lead to more conservative provisioning and closer scrutiny of NPA reporting, especially for UCBs which face a higher incremental NPA threshold initially.
What you must do
- Review your bank's current divergence assessment processes to align with the new lower thresholds from FY2023-24.
- Ensure UCBs update their reporting systems to handle the 15% incremental gross NPA threshold for FY2022-23 and prepare for potential reduction.
- Train finance and compliance teams on the revised disclosure requirements in the notes to annual financial statements.
- Monitor RBI inspection findings closely to pre-empt any divergence that could trigger mandatory disclosure.
Who it affects
All commercial banks (excluding Regional Rural Banks), All Primary (Urban) Co-operative Banks (UCBs), Bank finance and compliance departments, Auditors and audit committees
What are the new thresholds for divergence disclosure from FY2023-24?
For commercial banks, additional NPA provisioning exceeding 5% of reported profit before provisions and contingencies, or additional gross NPAs exceeding 5% of reported incremental gross NPAs, triggers disclosure. For UCBs, the provisioning threshold is also 5%, but the incremental gross NPA threshold is 15% (subject to review).
Are Regional Rural Banks (RRBs) covered by these directions?
No, RRBs are explicitly excluded from these disclosure requirements. The directions apply to all commercial banks (excluding RRBs) and all Primary (Urban) Co-operative Banks.
When do these revised thresholds take effect?
The revised thresholds apply to annual financial statements for the year ending March 31, 2024, and onwards. For FY2022-23, the earlier thresholds (10% for commercial banks, 15% for UCBs incremental NPAs) remain in effect.