Irked over stringent auditing over its financial results for the quarter ended March, 2015, state-run lender
Bank of India (BoI) dashed off a letter to the Reserve Bank of India (RBI) saying auditors have not allowed the bank to treat loan given to
Essar Steel as standard like most of the other lenders.
Bank of India, which reported loss in Jan-March quarter, classified the
loan as non-performing as
repayment was due for more than 90 days.
According to sources, the borrower paid its due to most of the lenders
on the 92nd or 93rd day – which technically becomes non-performing
assets.
According to RBI’s norms, if the interest and/or principle is due for
more than 90 days, a bank has to classify the loan as non-performing.
Sub-standard assets, the first level of NPAs, attract 15% provisioning,
as compared to 0.4% provisioning required for standard assets.
However, most of banks that have an exposure to Essar Steel have
treated the account as standard as the loan was serviced before the
Jan-March earnings were finanlised, and it was only a marginal delay.
However, Bank of India’s auditors wanted to go strictly by the books
and reasoned that the loan should be treated as non-performing. Bank of
India’s exposure (fund and non-fund based) to the steel major was around
Rs 250 crore.
More than 20 banks and financial institutions have an exposure to the steel company which is to the tune of Rs 50,000 crore.
“We are strictly going by the income recognition and asset
classification norms. If someone is not going by the books then it is
difficult for us to ignore. If we ignore it, the Reserve Bank of India
will find it during the annual inspection and will ask us why we have
done so,” said Bharat Rattan of B Rattan & Associates, one of the
central auditors of Bank of India.
The other auditors were Issac & Suresh, MM Nissim & Co, D Singh
& Co, JK Kapur & Uberai, and Grover Lalla & Mehta.
Bank of India had reported a net loss of Rs 56 crore during the
Jan-March quarter as compared to a net profit of Rs 558 crore during the
same period of the previous year.
This was due to doubling of provisions towards bad and doubtful assets,
which was Rs 2240 crore during the period under review. Its gross NPAs
doubled to Rs 22,193.24 crore in March 2015 from Rs 11,868.6 crore in
the same period last year.
Though the auditors are appointed by the banks, the central bank keeps
discussing various issues and sensitise them on issues that deserves
attention.